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SUPERMARKETING 


FRANK  J.  CHARVAT,  Ph.D. 

Associate  Professor  of  Marketing 

School  of  Business  Administration,  Emory  University 


THE  MACMILLAN  COMPANY        NEW  YORK 


\X7? 

©     Frank  J.  Charvat     1961 

All  rights  reserved — no  part  of  this  book  may  be  reproduced  in 
any  form  without  permission  in  writing  from  the  publisher,  except 
by  a  reviewer  who  wishes  to  quote  brief  passages  in  connection 
with  a  review  written  for  inclusion  in  a  magazine  or  newspaper. 

First  Printing 


Library  of  Congress  catalog  card  number:  60-14487 

The  Macmillan  Company,  New  York 
Brett-Macmillan  Ltd.,  Gait,  Ontario 

Printed  in  the  United  States  of  America 


PREFACE 


The  supermarket  today  is  regarded  as  an  established  institution, 
yet  only  thirty  years  ago  it  was  but  an  embryonic  idea.  Already, 
this  marketing  innovation  has  left  an  indelible  imprint  on  most  as- 
pects of  food  manufacturing,  processing,  wholesaling,  and  retailing. 
The  lack  of  a  text  devoted  to  a  comprehensive  appraisal  and  ana- 
lytical study  of  the  industry  has  prompted  the  writing  of  this  book. 
Directed  toward  a  broad  audience,  Supermarketing  is  intended  as 
an  aid  to  food  and  related-industry  entrepreneurs,  executives,  key 
employees  and  those  aspiring  to  positions  of  responsibility,  and 
marketing  students  at  the  university  level.  It  is  hoped  that  all  will 
find  something  helpful  here.  Top  executives,  for  example,  who  must 
be  well  informed  about  all  the  many  facets  of  supermarket  opera- 
tion, will  find  of  particular  interest  the  chapters  on  financial  con- 
siderations, the  impact  of  the  supermarket  on  the  food  industry,  and 
managerial  policy  and  practice.  Superette  managers  who  want  to  at- 
tain supermarket  status  for  their  enterprises  will  find  of  value  the 
store-operation  sections  and  the  appendix.  Food  brokers,  manufac- 
turers' salesmen,  processors,  and  wholesalers  will  be  interested  in 
the  entire  text,  especially  the  sections  on  buying  operations  and  the 
supermarket's  impact  on  the  industry.  Executives  of  retailing  opera- 
tions affected  by  the  supermarket  may  find  information  relevant  to 
the  increasing  competition  they  face  from  the  supermarkets.  Finally, 
students  of  marketing  at  universities,  particularly  in  the  areas  of  re- 
tailing, can  learn  principles  and  practices  which  will  be  of  value 


m 


iv  Preface 

in  their  future  business  careers.  The  book  may  also  be  of  use  as  a 
supplement  in  many  different  courses  in  marketing. 

The  author  owes  a  debt  of  gratitude  to  the  library  of  the  Super 
Market  Institute  for  the  use  of  its  excellent  research  facilities.  Re- 
search there  was  facilitated  by  the  cheerful  cooperation  of  the  li- 
brarian, Catherine  McAndrews.  Other  invaluable  aid  in  the  gather- 
ing of  pertinent  data  was  rendered  by  the  Institute's  Research  De- 
partment, directed  by  Curt  Kornblau.  The  book  has  benefited  greatly 
from  the  counsel  of  Dr.  Richard  M.  Clewett,  Professor  of  Marketing 
at  Northwestern  University.  The  analytical  criticism  of  Dr.  W.  Tate 
Whitman,  Professor  of  Economics  at  Emory  University,  has  been 
equally  helpful.  Dr.  Patrick  Kemp,  also  of  Emory  University,  edited 
the  sections  on  financing,  operations,  and  managerial  policy  and 
perspective.  Facilities  for  research  and  the  mechanical  work  of  com- 
piling the  text  were  provided  by  Emory  University's  School  of  Busi- 
ness through  the  assistance  of  Dean  Guy  W.  Trump  and  the  late 
Dean  Gordon  Siefkin.  Thanks  go  also  to  all  the  other  university 
colleagues  and  business  associates  who  were  so  helpful. 

Above  all,  credit  is  due  my  wife,  Theodora,  for  her  help  with  the 
editing  and  other  intricate  details  and  for  her  encouragement  and 
inspiration.  Nor  do  I  forget  my  son,  Jimmy,  who  always  wanted  to 
help. 

Frank  J.  Charvat 
Atlanta,  Georgia 


CONTENTS 


1.  INTRODUCTION  1 

Significance  of  the  supermarket  industry  •  Composition  of  the 
industry  in  1958  •  Approach  of  the  book  to  study  of  the  super- 
market industry  •  Scope  of  the  study 

2.  DEVELOPMENT  OF  THE  SUPERMARKET         11 

Introduction  •  Large  markets  prior  to  1930  •  Era  of  the 
"cheapy"  supermarket,  1930  to  1935  •  Period  of  experimental 
growth  and  development,  1935  to  1946  •  Postwar  period  of 
modern  supermarket  expansion  •  Summary 

3.  EXTERNAL  FACTORS  THAT  INFLUENCED  THE 
GROWTH  OF  THE  SUPERMARKET  INDUSTRY  30 

Introduction  •  Changes  in  personal  disposable  income  and  per- 
sonal consumption  expenditures  •  Shifts  in  upper  income  shares  • 
Changes  in  the  pattern  of  food  consumption  •  Changes  in  ex- 
penditures in  food  stores  •  Technological  developments  and 
their  adoption  •  Population  growth  and  shift  to  the  suburbs  • 
Retail  trend  toward  decentralization  •  Shift  in  consumer  buy- 
ing habits,  including  one-stop  shopping  and  scrambled  mer- 
chandising •  Additional  external  factors  that  influenced  the  su- 
permarket development  •  Market  of  the  1960's  •  Summary 

4.  SELLING  OPERATIONS  53 

Introduction  •  Volume — a  supermarket  necessity  •  Sales  prac- 
tices of  supermarkets  •  Summary 

V 


7s 


vi  Contents 

5.  BUYING  OPERATIONS  AND  MARGINS  75 

Introduction  •  Cost  of  goods  sold  •  Gross  margin  •  Summary 

6.  EXPENSES  AND  PROFITS 
Introduction  •  Operating  expenses  •  Profit  •  Summary 

7.  FINANCIAL  FACTORS  121 


Introduction  •  General  asset  structure  of  a  supermarket  •  De- 
velopment of  a  representative  supermarket  balance  sheet  •  Cur- 
rent assets  •  Equipment  needs  in  a  supermarket  •  Land  and 
building  •  Intangible  assets  •  Leasing  of  fixed  assets  •  Sources 
of  capital — debt  •  Sources  of  capital — ownership  •  Profits  on 
equity  capital  •  Results  of  the  analysis  of  certain  financial  state- 
ments of  supermarket  chains  •  Summary 

8.  EARLY  SUPERMARKET  IMPACT  ON  THE  FOOD 
STORE  INDUSTRY  152 

Introduction  •  Los  Angeles  area  supermarkets  •  Invasion  of  the 
East  by  the  '  cheapy"  supermarket  •  The  small  independent 
grocer  versus  the  "cheapy"  supermarket  •  Food  chains  versus 
the  "cheapy"  supermarket  •  The  case  of  the  Great  Atlantic  & 
Pacific  Tea  Company  •  Supermarket  advantages  for  large  food 
chains  •  Summary 

9.  SUPERMARKETS  BECOME  BIG  BUSINESS- 
INTEGRATION  168 

Introduction  •  Chains  dominate  supermarket  industry  •  Inte- 
gration •  Concentration  among  major  food  chains  •  Food  chain 
dilemma — acquire  or  expire  •  Voluntary  chain  growth  •  Sum- 
mary 

10.  CHANGES  IN  NUMBER  OF  FOOD  STORES  AND 
THEIR  SALES  VOLUME  188 

Introduction  •  Changes  in  the  number  of  food  stores  •  Changes 
in  the  sales  by  type  of  food  store  •  Conclusions  on  changes  in 
the  number  of  food  stores  and  their  sales  volume  •  Summary 

11.  CHANGES  IN  THE  SALES  OF  MAJOR  PRODUCT 
LINES  BY  TYPES  OF  FOOD  STORE  OUTLETS  199 

Introduction  •  Sales  of  major  product  classes  in  supermar- 
kets •  Sales  of  meat  products,  poultry,  and  seafood  by  type  of 
food  store  •  Sales  of  fresh  fruit  and  vegetables  by  type  of  food 


Contents  vu 

11.  CHANGES  IN  THE  SALES  OF  MAJOR  PRODUCT 
LINES  (Continued) 

store  •  Sales  of  confectionery  products  by  type  of  food  store  • 
Sales  of  bakery  products  by  type  of  food  store  •  Sales  of  canned 
goods  and  grocery  items  by  grocery  stores  and  combination 
markets  •  Sales  of  nonfood  products  in  grocery  stores  and  com- 
bination markets  •  Summary 

12.  MANAGERIAL  POLICY  AND  PERSPECTIVE  221 

Introduction  •  Dynamic  nature  of  the  supermarket  •  Position  in 
its  growth  cycle  •  Supermarket  trend  toward  "bigness"  •  Or- 
ganization concepts  •  Science  of  decision  making  in  manage- 
ment -fUse  of  research)-  Relationship  of  profit  to  volume,  fixed 
expense,  and  promotion  •  Merchandising  policies  •  Store  oper- 
ations •  Financing  growth  •  Deterrents  to  supermarket  growth  • 
The  illusiveness  of  good  will 

APPENDIX  A  253 

BIBLIOGRAPHY  265 

INDEX  271 


TABLES 

1-1     Total  Sales  by  Selected  Types  of  Retail  Outlets  for  the  Year 

1958  2 

1-2  Number  of  Supermarkets  in  the  United  States,  Estimated 
Sales  Volume  and  Per  Cent  of  Grocery  Store  Sales  and  of 
Food  Store  Sales  Transacted  by  Supermarkets  for  the  Years 
1935  to  1958  3 

1-3     Ownership  of  Supermarkets  Classified  by  Size  of  Organiza- 

zation  for  the  Year  1958  4 

1-4  Number  and  Sales  of  Supermarkets  Classified  by  Dollar  Vol- 
ume for  the  Year  1958  5 

2-1     National  Income  and  Employment  in  the  United  States  for 

the  Years  1929  to  1936  20 

2-2  Profit  and  Loss  Statement  for  the  Average  Grocery  Store  in 
the  Louisville  Survey  as  a  Percentage  of  Sales  for  the  Year 
1929  22 

2-3  Condensed  Profit  and  Loss  Statement  of  the  Retail  Store  Op- 
eration of  the  Great  A  &  P  Tea  Company  as  a  Percentage  of 
Sales  for  the  Years  1929  to  1935  23 

2-4     Operating  Statement  of  the  Big  Bear,  Elizabeth,  New  Jersey, 

for  the  Year  1933  24 

2-5  Operating  Statement  of  an  Average  Independent  Combina- 
tion Market  as  a  Percentage  of  Sales  for  the  Year  1935  26 

2-6     Number  of  A  &  P  Supermarkets  and  Small  Economy  Stores 

for  the  Years  1936  to  1943  27 

3-1  Total  Disposable  Personal  Income,  Total  and  Per  Capita  Per- 
sonal Consumption  Expenditure,  and  the  Cost  of  Living  In- 
dex in  the  United  States  for  the  Years  1935  to  1958  32 

3-2  Yearly  Consumption  of  Food  Products  per  Capita,  Retail- 
Weight  Equivalent  (in  pounds)  by  Major  Food  Groups  for 
the  Years  1929,  1948,  and  1954  34 

3-3     Total  Food  Store  Sales,  Per  Capita  Food  Store  Sales,  and 

Retail  Food  Price  Index  for  the  Years  1935  to  1958  36 

3-4     Percentage  of  Personal  Income  Expenditures  Spent  in  Food 

Stores  37 

3-5     Motor  Vehicle  Registrations   (in  thousands)  in  the  United 

States  for  the  Years  1915  to  1958  38 


Vlll 


42 

43 
44 


Tables  1X 

3-6     Manufacturers'  Sales  by  Number  of  Units  of  Refrigerators 

and  Home  Freezers  for  the  Years  1926  to  1956  39 

3-7  Shift  in  Population  in  140  Central  Cities  of  the  United  States 
with  50,000  Population  and  Over  for  the  Years  1930  and 
1940 

3-8  Shift  in  Population  in  168  Central  Cities  of  the  United  States 
with  50,000  Population  and  Over  for  the  Years  1940  and 
1950 

3-9  Retail  Trade  by  City  Size  for  the  Years  1954,  1948,  and 
1939 

3-10  Number  of  Supermarkets  in  the  United  States  by  Size  of  the 
Community  for  the  Years  1940,  1950,  and  1954,  and  the  Per- 
centage that  Each  Community  is  to  the  Total  46 

3-11  Findings  from  McCalFs  Magazine  Consumer  Diary  Study  of 
Food  Purchases  Made  by  1,090  Families  for  One  Week  in 
the  Year  1956  48 

4-1  Sales  of  Certain  Classes  of  Retail  Stores  and  Total  Retail 
Sales  in  the  United  States  for  the  Years  1929,  1939,  1948, 
and  1954  (in  billions  of  dollars)  54 

4-2     Operating  Statistics  of  Selected  Food  Chains  Expressed  as 

a  Percentage  of  Sales  for  the  Years  1955  to  1958  55 

4-3     Operating  Statistics  of  Wilt's  Supermarket,  Elkhart,  Indiana, 

Expressed  as  a  Percentage  of  Sales  for  the  Year  1956  56 

4-4  Maximum  Trading  Area  Radius  for  a  $500,000  Yearly  Vol- 
ume (and  over)  Supermarket  by  Size  of  Community  65 

4-5     Annual  Inventory  Turnover  of  Selected  Supermarket  Chains 

for  the  Year  1956  70 

4-6     Annual  Inventory  Turnover  of  Various  Lines  of  Retailing  for 

the  Year  1954  71 

4-7     Source  of  Nonfood  Products  in  Supermarkets  Expressed  as  a 

Percentage  of  Stores  Using  the  Source  72 

5-1     Grocery  Promotion  and  New  Item  Fact  Sheet  81 

5-2  Gross  Margin,  Expense  and  New  Profit  (before  taxes)  as  a 
Percentage  of  Sales  for  Selected  Supermarket  Chains  for  the 
Year  1956  91 

5-3     Gross  Margins  in  Supermarkets  by  Major  Product  Lines  92 

5-4     Gross  Margin  for  Various  Kinds  of  Retail  Establishments  for 

the  Year  1954  94 


i  Tables 

6-1  Operating  Statistics  of  Selected  Super  Market  Institute  Mem- 
bers as  a  Percentage  of  Sales  for  the  Years  1954  to  1958         100 

6-2     Operating  Expenses  as  a  Percentage  of  Sales  for  Various 

Types  of  Retail  Stores  for  the  Year  1954  102 

6-3  Major  Operating  Expenses  as  a  Percentage  of  Sales  for  Cer- 
tain Types  of  Retail  Outlets  103 

6-4  Advertising  Expenditures  by  Media  for  the  Supermarket  In- 
dustry as  a  Percentage  of  Total  Dollar  Ad  Expenditures  for 
the  Year  1956  105 

6-5     How  Stamps  Affect  Supermarket  Sales  107 

6-6     Functional  Expense  Analysis  of  Selected  Food  Chains  as  a 

Percentage  of  Sales  for  the  Years  1950  to  1958  110 

6-7     Itemized  Expenses  Classified  by  Functions  for  Selected  Food 

Chains  for  the  Year  1958  111 

6-8  Net  Profit  as  a  Percentage  of  Sales  for  Various  Types  of  Re- 
tail Stores  for  the  Year  1954  119 

7-1  Balance  Sheet  and  Yearly  Operating  Statement  of  a  Repre- 
sentative Supermarket  124 

7-2     Sources  of  Capital  for  the  Supermarket  Industry  138 

7-3     Sales,  Cost,  and  Profit  Relationships  for  the  Representative 

Supermarket  at  Various  Levels  of  Volume  146 

7-4  Results  of  Financial  Ratio  Analysis  of  Certain  Major  Super- 
market Chains  for  the  Years  1950  and  1956  150 

8-1  Statistics  on  the  Number  and  Volume  of  Sales  of  Large  Com- 
bination Markets  in  the  United  States  for  the  Years  1929  and 

1935  (in  thousands)  156 
8-2     Number  of  Stores  in  the  Five  Largest  Food  Chains  for  the 

Years  1934  to  1940  159 

8-3     Sales  for  the  Five  Largest  Volume  Food  Chains  for  the  Years 

1934,  1937,  and  1940  (in  millions)  159 

8-4     The  Total  Number  of  Stores  and  Number  of  Unprofitable 

Units  of  the  A  &  P  Co.  for  the  Years  1933  to  1941  161 

8-5     Total  Sales  of  A  &  P,  All  Grocery  and  Combination  Markets 

and  All  Food  Stores  for  the  Years  1929  to  1943  163 

8-6  Statistics  on  Total  Number  of  A  &  P  Stores,  Number  of  Su- 
permarkets, Total  Sales  and  Supermarket  Sales  for  the  Years 

1936  to  1943  (sales  in  millions  of  dollars)  164 


Tables  ** 

8-7  Operating  Results  of  the  A  &  P,  Detailed  into  Economy 
Stores  and  Supermarkets  for  the  Year  1941  (sales  in  thou- 
sands) 166 

9-1  Number  of  Food  Manufacturing  Plants  Operated  by  62 
Major  Food  Chains  and  the  Value  of  Shipments  from  these 
Establishments  for  the  Years  1954  and  1958  171 

9-2     Dollar  Sales  of  Ten  of  the  Largest  Food  Store  Chains  for  the 

Years  1945  and  1958  (in  millions)  173 

9-3     Sales  of  Ten  Major  Supermarket  Chains  and  Total  Food 

Store  Sales  for  the  Years  1945  and  1958  (in  millions)  173 

9-4     Number  of  Stores,  Sales  per  Store,  and  Net  Income  per  Store 

for  American  Stores  Company  for  the  Years  1945  to  1958        174 

9-5     Number  and  Volume  of  Food  Stores  That  Were  Acquired  by 

Food  Chains  for  the  Years  1949  to  1958  176 

9-6  Chain  Grocery  Store  Sales  Classified  by  Volume,  Expressed 
in  Dollars  and  as  a  Percentage  of  Total  Chain  Grocery  Sales 
for  the  Years  1951  and  1957  177 

9-7     Number  and  Volume  of  Food  Stores  That  Were  Acquired 

by  Ten  Major  Food  Chains  for  the  Years  1949  to  1958  179 

9-8  Wholesale  Sales  of  Certain  Voluntary  Food  Chain  Groups  in 
the  United  States  for  the  Years  1948,  1954,  and  1958  (in 
millions)  186 

10-1     Number  of  Food  Stores  in  the  United  States  by  Type  of 

Store  for  the  Years  1929,  1954,  and  1958  189 

10-2     Food  Store  Sales  in  the  United  States  by  Type  of  Store  for 

the  Years  1929,  1954,  and  1958  i92 

11-1     Results  of  Three  Recent  Studies  on  the  Percentage  of  Sales 

of  Major  Product  Classes  Transacted  by  Supermarkets  200 

11-2  How  an  Average  Customer  Spends  Her  Supermarket  Dollars 
for  Grocery  Products  and  the  Percentage  Gross  Margin  on 
Sales  of  these  Items  201 

11-3     Estimated  Meat,  Poultry,  and  Seafood  Sales  by  Major  Type 

of  Food  Store  Outlet  for  the  Years  1929  and  1954  203 

11-4    Estimated  Fresh  Fruit  and  Vegetable  Sales  by  Major  Type 

of  Food  Store  Outlet  for  1929  and  1954  205 

11-5     Sales  of  Confections  by  Certain  Major  Retail  Outlets  for  the 

Years  1929  and  1954  208 


x*  Tables 

11-6     Estimated  Bakery  Product  Sales  by  Major  Type  of  Food 

Store  Outlet  for  the  Years  1929  and  1954  210 

11-7     Sales  of  Grocery  Product  Items  by  Major  Food  Store  Outlets 

for  1929  and  1958  212 

11-8  Estimated  Percentages  of  Supermarkets  That  Handle  Non- 
food Lines  Together  with  Major  Source  of  Supply  for  the 
Year  1958  215 

11-9  Sales  of  Nonfood  Items  in  Grocery  Stores  and  Combination 
Markets  in  Dollars  and  as  a  Percentage  of  Total  Consump- 
tion for  the  Year  1958  216 


INTRODUCTION 


SIGNIFICANCE  OF  THE  SUPERMARKET  INDUSTRY 

The  supermarket,  which  is  a  relatively  new  institution,  already  \ 
transacts  more  dollar  volume  per  year  than  all  department,  variety, 
and  drugstores  combined.  Furthermore,  as  comparative  statistics  in 
Table  1-1  indicate,  the  supermarket  industry  has  surpassed  volume- 
wise  all  other  types  of  nondurable-goods  stores  and  now  ranks  as 
"volume  king"  of  traditional  retailing.1  Only  the  automobile  dealers 
—durable-goods  outlets  with  large  dollar-unit  sales— exceeded  the 
supermarket  industry  in  1958  on  a  dollar-volume  basis.  But  con- 
sumers basically  do  not  envisage  an  automobile  dealer  as  a  retailer. 

The  20,413  supermarkets,  supermarts,  or  supers  in  the  United 
States  in  1958  transacted  an  estimated  volume  of  $28.7  billion.  This 
phenomenal  $28.7  billion  volume,  averaging  more  than  $1,404,000 
per  supermarket,  represented  64  per  cent  of  all  grocery  store  sales 
and  57  per  cent  of  the  total  food  store  sales  in  the  country. 

Yet,  30  years  ago,  the  supermarket  industry  was  comprised  of  only 
a  few  hundred  stores  scattered  throughout  the  Far  West  and  the 
Southwest,  Statistics  in  Table  1-2  evidence  the  phenomenal  growth 
of  this  industry,  which  literally  has  leaped  into  national  prominence. 
However,  statistics  in  Table  1-2  do  not  show  the  complete  extent  of 
food  sales  in  large  markets  inasmuch  as  the  volume  prerequisite  for 
admission  to  the  "charmed  circle"  was  changed  twice  in  the  past 
nine  years.  Prior  to  1951,  a  qualifying  super  needed  to  transact 
a  yearly  volume  of  $250,000.  In  1951,  the  standard  was  raised  to 

1  The  term  traditional  retailing  includes  bakery,  clothing,  confectionery,  deli- 
catessen, department,  drug,  furniture  and  appliances,  grocery,  hardware,  shoe, 
variety,  and  vegetable  and  fruit  stores,  and  service  stations. 

1 


2  Supermarketing 

TABLE  1-1  * 

Total  Sales  by  Selected  Types  of  Retail  Outlets  for  the  Year  1958. 

Sales 
Type  of  outlet  (in  billions) 

Automobile  dealers $31.63 

Supermarkets  f 28.66 

Gasoline  service  stations 15.73 

Department  stores 12.50 

Furniture  and  appliance  stores 10.32 

Drug  stores 6.59 

Variety  stores 3-59 

*  U.S.  Bureau  of  the  Census,  Survey  of  Current  Business,  Government  Print- 
ing Office,  Washington,  D.C.,  March,  1959,  p.  s-9. 

f  "Industry  Survey,"  Super  Market  Merchandising,  XXIV,  no.  3,  April,  1959, 
p.  42. 

$375,000;  and  in  1954,  the  volume  requirement  was  lifted  to  $500,000 
per  year.  Under  the  $375,000  requirement,  the  number  of  super- 
markets in  1956  was  22,567,  with  sales  of  $23.2  billion.2 

COMPOSITION  OF  THE  INDUSTRY  IN  1958 

It  is  difficult  to  visualize  an  American  who  hasn't  shopped  in  a 
supermarket.  Supers  seem  to  abound  everywhere.  Yet,  what  is  the 
current  status  as  to  components  of  this  industry  that  literally  revo- 
lutionized not  only  food  distribution  but  the  entire  retailing  system? 

Data  in  Table  1-3  indicate  20.7  per  cent  or  4,236  of  the  super- 
markets are  individual  units  as  far  as  ownership  and  operation  are 
concerned.  Many  started  as  small  stores.  Whatever  profits  were 
made  have  gone  into  building  up  the  store  into  a  sizable  venture, 
inasmuch  as  more  facilities  are  needed  constantly.  An  individual 
super  can  require  ownership  capital  of  several  hundred  thousand 
dollars  invested  at  one  location.  Obviously,  close  supervision  is 
needed  to  manage  a  business  of  this  scope,  which  averages  over 
$1,000,000  volume  per  year.  However,  an  additional  6.6  per  cent, 
or  1,343  of  the  supers,  have  branched  out  into  two-  and  three-unit 

2  "Super  Market  Boom  Rides  out  Another  Year,"  Super  Market  Merchandis- 
ing, XXII,  no.  4,  April,  1957,  p.  104. 


Introduction 


TABLE  1-2 

Number  of  Supermarkets  in  the  U.S.,  Estimated  Sales  Volume, 

and  Per  Cent  of  Grocery  Store  Sales  and  of  Food  Store  Sales 

Transacted  by  Supermarkets  for  the  Years  1935  to  1958. 


Year 

Number  of 
supermarkets  * 

300 
1,200 
3,066 

Estimated 
supermarket 

sales  * 
(in  millions) 

Supermarket 

sales  as  a  per 

cent  of  grocery 

store  sales  \ 

Supermarket 
sales  as  a  per 
cent  of  food 
store  sales  \ 

1935 
1936 
1937 

$    150 
500 
800 

— 

1.7 
5.6 
8.2 

1938 
1939 
1940 

3,700 
4,982 
6,175 

1,000 
1,500 
2,000 

19.4 
24.0 

10.5 
14.7 
18.3 

1941 
1942 
1943 

8,175 
9,011 
9,100 

2,500 
3,000 
3,500 

26.0 

24.7 
26.4 

19.8 
19.0 
20.0 

1944 
1945 
1946 

9,460 

9,575 

10,057 

3,600 
4,500 
5,500 

26.4 
31.4 
29.8 

18.9 

22.7 

22.7 

1947 
1948 
1949 

10,846 
11,970 
13,089 

7,000 
7,780 
8,507 

31.3 
32.3 
35.2 

24.6 
25.1 
27.4 

1950 

1951$ 

1952 

14,217 
15,383 
16,501 

10,250 
12,356 
14,096 

40.3 
40.7 
43.7 

31.3 
32.9 
35.4 

1953 

1954$ 

1955 

17,550 

13,598 
15,153 

16,092 
15,980 
18,644 

47.9 
45.8 
50.5 

39.4 

38.5 
42.7 

1956 
1957 
1958 

17,024 
18,843 
20,413 

21,797 
25,235 
28,664. 

55.7 
59.5 
64.3 

■    47.4 
52.8 
56.9 

*  Yearly  surveys  published  in  April  editions,  Super  Market  Merchandising. 

f  Calculated  by  dividing  supermarket  sales  by  total  grocery  store  sales  and 
total  food  store  sales,  obtained  from  U.S.  Department  of  Commerce,  Survey  of 
Current  Business,  Government  Printing  Office,  Washington,  D.C.,  March  edi- 
tions. 

\  Statistics  for  the  years  prior  to  1951  were  for  stores  with  a  minimum  volume 
of  $250,000.  Data  for  the  years  1951  through  1953  were  for  stores  with  a  mini- 
mum volume  of  $375,000.  Since  1954,  data  include  stores  with  a  minimum  vol- 
ume of  $500,000. 


Supermarketing 


TABLE  1-3* 

Ownership  of  Supermarkets  Classified  by 
Size  of  Organization  for  the  Year  1958. 


Size  of  Number  of  %  of  $  Sales  %  of 

organization  stores  stores  (in  millions) 


I  store 4,236  20.7  5,224  18.2 

2-3  stores 1,343  6.6  1,813  6.3 

4-10  stores 1,244  6.1  1,835  6.4 

II  or  more  stores     .     .  13,590  66.6  19,792  69.1 

20,413  100.0  28,664  100.0 


*  "True  Look  at  the  Super  Market  Industry,"  Super  Market  Merchandising. 
XXIV,  no.  4,  April,  1959,  p.  102. 


operations  in  an  effort  to  increase  earnings,  to  diversify  risk,  and  to 
afford  a  source  for  reinvestment  of  earnings.  An  additional  1,244 
stores,  or  6.1  per  cent  of  the  supers,  have  grown  into  larger  opera- 
tions of  from  four  to  ten  units  in  a  given  community  or  region.  Con- 
sumers frequently  refer  to  these  as  chains.  However,  by  definition, 
a  chain  must  contain  eleven  or  more  units.  Most  of  the  concerns  in 
this  four-  to  ten-unit  group  are  the  result  of  expansion  from  one 
store.  And,  over  the  years,  through  opening  new  stores  and  acquir- 
ing existing  ones  by  exchange  of  stock  or  outright  purchase,  the  cor- 
porate chain  has  become  the  dominant  force  in  the  industry,  with 
66.6  per  cent  of  the  stores  and  69.1  per  cent  of  the  volume.  Chains 
tend  to  operate  the  larger  stores. 

While  33  per  cent,  or  6,813,  of  the  supers  are  listed  as  nonchains 
or  independents,  the  bulk  of  these  (more  than  70  per  cent)  are 
members  of  wholesale-  or  retail-sponsored  voluntary  chains.3  These 
voluntaries,  exemplified  by  the  Independent  Grocers  Alliance  of 
America  and  the  Red  and  White  Corporation,  operate  primarily  as 
buying  organizations  for  their  members,  although  they  also  offer 

3 Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1958),  p. 
F— 15. 


Introduction  5 

merchandising,  advertising,  and  promotional  services.  Thus  the  buy- 
ing power  in  supermarts  tends  to  be  concentrated. 

Statistics  in  Table  1-4  reveal  that  9,223,  or  about  45  per  cent,  of 
the  supers  transacted  a  yearly  volume  of  from  $500,000  to  $1,000,- 
000.  The  markets  transacting  between  $1,000,000  and  $2,000,000 
yearly  represented  only  39.9  per  cent  of  the  supers  but  were  the 
major  class  volumewise.  If  $110  per  square  foot  of  space  in  a  super 

TABLE  1-4* 

Number  and  Sales  of  Supermarkets  Classified 
by  Dollar  Volume  for  the  Year  1958. 


Number  of  %  of  $  Sales  %  of 

$  Volume  markets  markets  (in  millions) 


500,000-  999,000  9,223  45.2  $  6,641  23.2 
1,000,000-1,999,000  8,139  39.9  12,045  42.0 
2,000,000-4,999,000  2,869  14.1  8,492  29.6 
5,000,000-and  over 182 08 1,485 5^ 

*  "True  Look  at  the  Super  Market  Industry,"  Super  Market  Merchandising, 
XXIV,  no.  4,  April,  1959,  p.  102. 

is  used  as  an  approximate  standard,  the  latter  market  would  range 
from  11,000  sq  ft  to  22,000  sq  ft  of  space,  exclusive  of  any  outside 
facilities.4  The  colossuses  with  sales  of  over  $5,000,000  are  insignifi- 
cant numerically  but  transact  5  per  cent  of  supermarket  sales. 

Where  are  the  supers  located  geographically?  Although  super- 
markets are  found  in  every  state,  plus  the  District  of  Columbia,  they 
have  tended  to  concentrate  ( obtain  a  larger  share  of  the  food  busi- 
ness )  in  the  newer  growing  areas.  Supermarts  transacted  more  than 
70  per  cent  of  the  grocery  store  sales  in  Arizona,  California,  Colo- 
rado, Florida,  Louisiana,  and  Nevada.5  Texas  has  also  been  a  mecca 
for  supermarkets.  In  Florida  alone,  supers  transacted  87  per  cent  of 
the  grocery  sales.  Supermarkets  also  are  especially  dominant  in  New 

4  "Super  Market  Boom  Rides  out  Another  Year,"  Super  Market  Merchandis- 
ing, op.  cit. 

5  Ibid. 


6  Supermarketing  \ 

Jersey  and  Michigan,  two  original  "hot  beds"  of  supers  in  the  early 
1930s. 

The  1958  supermarket  had  23.6  full-time  and  6.7  part-time  em- 
ployees per  store.6  These  data  include  central  office  and  warehouse 
personnel  as  well  as  store  employees.  Roughly  projecting  these  sta- 
tistics to  a  total  industry  basis  would  indicate  400,000  to  500,000 
full-time  and  125,000  part-time  workers. 

APPROACH  OF  THE  BOOK  TO  STUDY  OF  THE 
SUPERMARKET  INDUSTRY 

The  size,  significance,  and  composition  of  the  industry  have  been 
presented  to  show  the  importance  of  the  supermarket  in  the  area  of 
distribution.  This  is  a  field  in  which  firms  are  big  business.  In  trac- 
ing the  development  of  the  supermarket  to  its  present  status,  it  is 
necessary  to  examine  certain  issues:  What  is  a  supermarket?  Why 
did  the  industry  start?  Why  did  the  industry  develop  so  rapidly? 
What  practices  and  policies  did  supermart  management  adopt  to 
generate  expansion?  Furthermore,  since  such  rapid  growth  was  cer- 
tain to  have  its  impact  upon  the  existing  marketing  order,  what 
changes  in  the  food  store  sales  pattern  resulted?  What  shifts  oc- 
curred in  the  sales  and  major  product  fines  of  other  types  of  stores 
that  were  encroached  upon  by  the  invading  supermarket?  An  ex- 
amination of  these  issues  forms  the  core  of  this  text. 


Definition  of  a  Supermarket 

First  consider  the  term  supermarket,  which  did  not  appear  in  | 
Webster's  Unabridged  New  International  Dictionary  until  1956.7  1 
Basically  the  definition  evolves  around  the  two  terms  super  and  || 
market. 

Super  means  "above,"  "over  beyond,"  "that  which  surpasses." 

6  "True  Look  at  the  Super  Market  Industry,"  Super  Market  Merchandising* 
XXIV,  no.  4,  April,  1959,  p.  102. 

7  Certain  organizations  and  authorities  who  pioneered  in  this  field  employed 
the  term  super  market  as  two  words  instead  of  one,  as  Webster  lists  it.  As  a 
result  of  usage  over  the  years,  this  spelling  also  has  found  wide  support  in  the 
industry. 


•7 

Introduction 

Market  refers  to  a  "place"  where  merchandise  is  displayed  or  avail- 
able for  sale.  Marketing  can  be  considered  the  act  of  selling  or  pur- 
chasing in,  or  as  in,  a  market.  Therefore,  in  a  broad  sense,  super- 
marketing  can  be  considered  the  act  of  marketing  on  a  large  scale 
or  in  a  manner  that  surpasses  ordinary  marketing. 

However,  the  term  supermarket  first  became  associated  with  the 
large  food  stores  that  developed  in  the  Far  West  in  the  1920's,  and 
through  usage  the  term  became  synonymous  with  this  type  of  food 
retailing.  It  is  in  this  sense  that  the  term  "supermarketing"  is  used 
in  this  text;  namely,  it  describes  the  marketing  activity  in  the  large 
type  of  retail  food  store  known  as  a  supermarket. 

Next,  the  specific  definition  of  a  supermarket  must  be  considered. 
This  is  imperative  in  order  to  gather  statistical  material  and  to  ana- 
lyze the  industry.  Literally  scores  of  definitions  have  been  formu- 
lated over  the  years.  These  have  been  subject  to  changes  because 
of  wide  diversity  and  extremely  rapid  growth.  Diversity  has  existed 
in  (1)  number  of  stores  by  owners,  (2)  sales  volume  per  unit,  (3) 
product  lines  handled,  and  (4)  regional  features.  In  this  book  the 
accepted  definition  is: 

A  supermarket  is  a  departmentalized  retail  food  store  having  four  basic 
food  departments— self-service  groceries,  meat,  produce,  and  dairy— plus 
any  number  of  other  departments,  with  the  establishment  doing  a  mini- 
mum yearly  volume  of  $500,000.8 

Innovation 

The  question  of  definition  was  answered  at  the  start.  Next,  what 
brought  about  the  advent  of  the  supermarket?  In  the  1920's  the  food 

8  Authorities  in  the  field  have  differed  as  to  what  the  minimum  volume  of  a 
supermarket  should  be.  Prior  to  1951,  the  two  major  sources  of  statistical  infor- 
mation in  the  industry-the  magazine,  Super  Market  Merchandising,  on*  the 
trade  association,  Super  Market  Institute— were  in  accord  on  the  $250,000  mini- 
mum volume.  In  order  to  make  adjustment  for  the  change  in  the  rising  level  of 
food  prices  and  for  the  trend  toward  larger  stores,  both  raised  their  minimum 
volume  in  1951.  The  $375,000  volume  was  selected  by  Super  Market  Merchan- 
dising because  it  corresponded  to  the  O.P.S.  classification  for  Typer  4  stores 
The  Super  Market  Institute  in  1951  raised  its  minimum  volume  to  $500,000.  In 
1954  Super  Market  Merchandising  did  likewise,  and  both  sources  once  agam 
were  in  agreement  as  to  volume. 


®  Supermarketing 

store  industry  was  composed  of  many  single-  or  limited-line  outlets 
such  as  dairy  stores,  grocery  stores  without  meat,  meat  markets,  con- 
fectioners, and  delicatessens.  The  movement  toward  multi-line  opera- 
tion, however,  in  the  form  of  the  combination  market  had  started. 
The  two  major  outlets  were  the  grocery  store  without  meat  and  the 
combination  market.  Whether  independently  owned  or  members  of 
chains,  these  were  generally  small,  were  located  close  to  the  con- 
sumer, and  offered  a  variety  of  services  such  as  credit  and  delivery. 
A  marketing  innovation,  the  supermarket,  appeared  in  California 
in  the  late  1920's  and  several  years  later  in  the  East.  The  underlying 
forces  behind  each  of  these  movements  were  different.  Even  the 
stores  were  not  the  same,  but  each  offered  a  key  to  the  growing  im- 
portance of  the  supermarket  movement  and  to  changes  in  the  pattern 
of  retail  sales.  This  subject  of  development  is  discussed  compre- 
hensively in  Chapter  2. 

Internal  and  External  Factors 

The  growth  of  the  supermarket  industry  occurred  in  an  era  in 
which  a  maze  of  particular  external  influences  were  present  that  had 
a  bearing  on  its  development.  Consumer  buying  habits  changed.  A 
desire  for  one-stop  shopping  came  into  vogue.  The  automobile  came 
into  wider  use  for  everyday  living;  refrigeration  became  a  "must" 
for  most  homes.  From  the  depths  of  a  depression,  personal  dispos- 
able income  rose  to  an  unprecedented  height  by  1958.  These  and 
other  factors  are  presented  in  Chapter  3  to  ascertain  what  influence 
they  had  on  the  development  of  the  supermarket  industry. 

How  did  the  food  store  industry  as  a  group  fare  in  this  economic, 
technological,  and  psychological  setting?  Did  the  supermarket  gain 
more  in  volume  than  other  types  of  food  stores?  It  was  found  that  it 
did.  Therefore  internal  features  are  examined  to  discern  what  prac- 
tices the  supermarket  operators  adopted  that  attracted  customers 
to  them.  These  techniques  are  grouped  under  operational  and  finan- 
cial factors  and  are  given  close  scrutiny  in  Chapters  4  through  7. 
Such  features  as  buying  practices,  selling  techniques,  pricing,  ex- 


Introduction  9 

pense  control,  profit  relationships,  and  investment  requirements  are 
highlighted.  These  chapters,  which  basically  contain  the  principles 
of  supennarketing,  are  of  special  interest  to  management,  owners, 
and  students. 

Impact  on  Pattern  of  Food  Store  Sales 

Specifically,  what  changes  occurred  in  the  pattern  of  food  store 
sales  by  1958  compared  with  those  of  1929  when  supermarkets  were 
for  practical  purposes  nonexistent?  An  answer  to  this  requires  a  de- 
tailed statistical  study  of  ( 1 )  the  number  of  different  kinds  of  food 
stores,  (2)  sales  by  type  of  food  stores,  and  (3)  sales  of  major  prod- 
uct lines  transacted  by  types  of  food  stores.  These  three  constitute 
the  pattern  of  food  store  sales  as  defined  in  this  book.  The  impact 
of  the  supermarket  is  examined  in  Chapters  8  through  11.  The  final 
chapter,  12,  is  devoted  to  industry  trends  and  conclusions  of  this 
study,  written  from  a  management  point  of  view  so  as  to  aid  present 
and  future  policy  and  decisions.  This  final  chapter  is  entitled,  "Man- 
agerial Policy  and  Perspective." 

SCOPE  OF  THE  STUDY 

The  growth  of  the  supermarket  industry  influenced  other  phases 
of  food  and  nonfood  distribution  besides  the  food  sales  pattern.  The 
supermarket's  successful  exploitation  of  self-service  influenced  other 
forms  of  retailers  to  review  their  selling  techniques  and  possibly  to 
adopt  this  principle.  The  addition  of  nonfood  lines  by  supermarkets 
tended  to  shift  the  sales  pattern  by  kind  of  retail  outlet  for  items 
such  as  health  and  beauty  aids,  housewares,  and  certain  soft  goods. 

Manufacturers  and  wholesalers  of  food  products  reviewed  their 
marketing  programs  in  an  attempt  to  obtain  greater  distribution  of 
their  lines  in  supermarkets.  Frequently  manufacturers  sold  directly 
to  supers.  Food  wholesalers  were  able  to  reduce  their  costs  of 
operation  through  cost-plus   plans; 9   many   worked   closely   with 

9  R.  D.  Tousley,  "Reducing  Distribution  Costs  in  the  Grocery  Field,"  Journal 
of  Marketing,  XII,  no.  4,  April,  1948,  p.  455. 


10  Supermarketing 

supers  on  narrow  margins  or  even  sponsored  their  own  supermarts. 
All  these  salient  aspects  offer  challenging  facets  for  study.  While 
these  and  other  factors  are  considered  in  this  text,  attention  is  mainly 
centered  on  the  innovation,  growth,  operational  features,  and  impact 
of  the  supermarket  on  the  pattern  of  food  store  sales  which  occurred 
simultaneously  with  the  supermarket  development. 


DEVELOPMENT  OF  THE 
SUPERMARKET 


INTRODUCTION 

In  the  preceding  chapter,  the  significance  of  the  supermarket  in- 
dustry, its  definition,  the  plan  of  approach,  and  the  scope  of  this 
text  were  considered.  It  is  the  objective  of  this  chapter  to  study  the 
development  of  large  markets  in  the  United  States  from  the  time 
of  the  earliest  Boston  public  market  to  the  modern  supermarkets  of 
today.  Included  are  the  forces  that  had  a  bearing  on  the  start  of 
supermarkets  in  the  Los  Angeles  area  and  the  East.  For  convenience 
in  presentation,  the  data  are  examined  in  chronological  time  periods. 
These  are  as  follows: 

1.  Large  markets  prior  to  1930 

2.  The  era  of  the  "cheapy"  supermarket,  1930  to  1935 

3.  The  period  of  experimental  growth  and  development,  1935  to 
1946 

4.  The  postwar  period  of  "modern*  supermarket  expansion,  1946 
to  date 

LARGE  MARKETS  PRIOR  TO  1930 

In  this  section  the  history  of  early  large  markets  prior  to  1930  is 
reviewed  to  ascertain  if  any  met  the  accepted  definition  of  a  super- 
market as  outlined  in  this  book.  This  includes  an  examination  of: 
(1)  early  public  and  private  concession-type  markets,  (2)  Piggly 
Wiggly  stores,  (3)  "market  stores"  of  the  Los  Angeles  area,  and  (4) 
large  markets  in  the  Southwest. 

11 


12  Supermarketing 

Early  Public  and  Private  Concession-Type  Markets 

The  concept  of  a  large  market  is  not  a  recent  innovation  in  the 
United  States.1  Large  markets  operating  under  public  ownership 
date  back  to  1658  in  Boston.2  Some  of  the  very  early  ventures  were 
the  Faneuil  Hall  Market  of  Boston,  the  Lexington  Market  of  Balti- 
more, and  the  Catherine  Market  of  New  York  City.  The  Catherine 
Market  by  1860  had  60  enclosed  stalls  in  addition  to  the  areas  used 
by  the  open-air  vendors.  By  1918  the  U.S.  Bureau  of  the  Census 
listed  174  of  these  large  retail  markets  in  cities  of  over  30,000  popu- 
lation.3 

Not  all  the  early  markets  were  publicly  owned.  Privately  financed 
and  operated  markets  included  the  Reading  Terminal  Market  of 
Philadelphia,  the  Euclid  and  46th  Street  Market  of  Cleveland,  and 
the  Pike  Place  Market  of  Seattle. 

These  early  markets  were  housed  in  a  variety  of  buildings,  vary- 
ing from  sheds  or  booths  (frequently  built  on  public  property  to 
enable  farmers  to  sell  their  products)  to  the  more  elaborate  struc- 
tures found  in  New  Orleans  and  San  Francisco.  They  all  had  com- 
mon characteristics:  (1)  a  large  area,  (2)  many  stalls,  booths,  or 
departments  leased  to  various  proprietors  who  operated  individ- 
ually, and  (3)  a  large  over-all  volume  for  the  market,  although  each 
section  had  a  relatively  small  sales  volume. 

Were  these  supermarkets?  A  brief  description  of  the  mode  of 
operation  of  one— the  Crystal  Palace  Market  of  San  Francisco— is 
presented  to  see  how  it  measured  against  our  current  definition  of 
a  supermarket. 

Crystal  Palace  Market 

This  establishment,  founded  in  1922  and  controlled  by  the  owners 
of  the  Emporium,  was  housed  in  a  68,000-sq  ft  building  located  in 

1Paul  H.  Nystrom,  Economics  of  Retailing  (New  York:  The  Ronald  Press 
Co.,  1936),  Vol.  1,  p.  335. 

2 Arthur  E.  Goodwin,  Markets  Public  and  Private  (Seattle:  Montgomery 
Printing  Co.,  1939),  p.  22. 

a  Ibid.,  p.  27. 


Development  of  the  Supermarket  13 

the  downtown  district.4  Public  transportation  was  good;  80  per  cent 
of  all  street  cars  in  the  city  passed  its  door.  In  addition,  a  4,350-car 
parking  lot  was  immediately  adjacent.  The  multimillion  dollar 
sales  volume  of  1929  was  divided  among  the  following  product 
classes:  5 

%  sales 

Meat 18 

Fruit  and  vegetable 16 

Grocery 15 

Delicatessen 13 

Drugs,  tobacco,  etc 12 

Restaurant 10 

Dairy ' 

Fish  and  poultry 5 

Bakery 3 

Miscellaneous 1 

100 

There  were  110  departments,  with  concessions  leased  on  a  mini- 
mum guarantee  basis  and  every  lease  containing  a  percentage-of- 
gross-sales  clause.  Management  had  control  over  the  kind  and  qual- 
ity of  merchandise  sold.  Extensive  advertising  was  done,  with  the 
market  drawing  150,000  people  weekly.  The  appeal  was  not  one  of 
price;  rather,  extensive  promotions  were  planned,  including  car 
raffles  and  public  drawings. 

This  operation,  founded  in  the  1920,s,  certainly  had  many  of  the 
characteristics  attributed  to  a  supermarket  in  Chapter  1.  While  it 
was  not  a  supermarket  as  defined,  since  it  lacked  self-service,  it 
certainly  was  a  forerunner  of  the  modern  super.  The  lack  of  self- 
service  also  characterized  the  other  typical,  large  early  markets  of 
the  United  States. 

Piggly  Wiggly  Stores 

During  1916  in  Memphis,  Tennessee,  Clarence  Saunders  started 
his  first  revolutionary  self-service  store  in  a  location  formerly  oper- 

4  The  Emporium  is  a  San  Francisco  department  store. 

SEmil  Dollenger,  "Quality,  Not  Price,  Built  San  Francisco's  Grand  Crystal 
Market,"  Super  Market  Merchandising,  II,  no.  1,  January,  1937,  p.  3. 


14  Supermarketing 

ated  by  a  regional  chain.6  He  emphasized  basic  principles  of  stand- 
ardization and  simplification  found  in  industrial  management  books 
of  today. 

In  the  first  six  months  of  operation,  this  store  did  $114,000  gross 
sales  at  an  expense  of  $3,400— a  3  per  cent  of  sales  expense  rate— 
and  experienced  a  stock  turnover  of  39  times  a  year.7  This  success 
was  partly  attributed  to  the  innovation  of  self-service.  The  idea 
grew  into  a  chain  of  owned  and  leased  stores,  with  the  latter  li- 
censed to  use  the  name,  equipment,  and  method  of  operation. 

After  a  series  of  financial  maneuvers,  Saunders  lost  control  in 
1923.  However,  the  chain  continued  to  expand,  and  by  1928  reached 
a  peak  of  2,700  stores  in  41  states;  this  was  prior  to  sale  of  its  stores 
to  Safeway  Stores  and  the  Kroger  Company.8 

Unfortunately,  only  fragmentary  information  is  available  on  the 
complete  operating  results  of  this  chain.  It  was  reported  in  1920 
that  the  operating  subsidiary,  Piggly  Wiggly  Store  Company,  had 
404  units  with  a  yearly  volume  of  almost  $60,000,000.9  The  average 
yearly  store  volume  was  $150,000,  although  the  peak  store  did  a 
$10,000  weekly  sales  volume  while  operating  as  a  self-service  com- 
bination grocery  and  meat  market.10  The  resulting  net  profits  of  this 
chain  from  1919  to  1925  as  a  percentage  of  sales  were  mediocre 
(less  than  1  per  cent);  however,  detailed  expense  breakdowns  were 
not  published.11 

A  separately  controlled  chain,  Piggly  Wiggly  Western  States 
Company,  reported  for  the  fiscal  year  1923  a  gross  margin  of  11.8 
per  cent  and  an  operating  expense  of  8.3  per  cent.12  These  ex- 
tremely favorable  results  compare  with  today's  supermarket,  but 
they  steadily  declined  thereafter  until  the  chain  was  sold  in  1927. 

6  Walter  Hay  ward  and  Percival  White,  Chain  Stores  (New  York:  McGraw- 
Hill  Book  Co.,  Inc.,  1922),  p.  180. 

7  Ibid. 

8  Ibid.,  p.  186. 

9R.  P.  Crawford,  "Piggly  Wiggly,  How  It  Has  Grown,"  Forbes,  October, 
1921,  p.  15. 
io  Ibid. 

11  Moody's  Industrial  Manual,  1920-1926. 

12  Ibid. 


Development  of  the  Supermarket  15 

Based  on  the  available  information,  a  few  of  the  Piggly  Wiggly 
Stores  were  supermarkets  according  to  our  current  definition.  The 
limited  data  indicated  the  system,  in  part,  operated  at  a  smaller 
expense  rate  than  the  existing  independent  grocer  or  the  chain 
economy  store  whose  clerks  serviced  the  trade.  But  in  the  era  of 
the  1920's,  the  chains  were  concentrating  on  clerk-service  economy 
stores  and  did  not  develop  the  potentialities  of  self-service. 

"Market  Stores"  of  the  Los  Angeles  Area 

Two  kinds  of  "market  stores"  that  flourished  in  the  Los  Angeles 
area  prior  to  1930  were  also  supermarkets  according  to  the  defini- 
tion set  forth  in  this  book.  These  were: 

1.  The  large,  self-service  food  store,  which  was  operated  under 
centralized  control  and  which,  by  current  standards,  would  be 
judged  as  an  excellent  example  of  a  supermarket 

2.  The  open-front,  drive-in  market,  which  comprised  a  group  of 
independent  units  in  a  single  building 

Ralph's  Grocery  Company.  The  first  type  of  these  market  stores 
was  exemplified  by  Ralph's  Grocery  Company,  although  there  were 
others  such  as  Carty  Brothers  and  Alpha  Beta  Food  Markets. 
Ralph's,  still  a  large  supermarket  operator  today,  started  in  down- 
town Los  Angeles  in  1872  with  one  store.13  By  1911  the  company 
had  built  a  flourishing  operation  featuring  clerk-service  and  de- 
livery. As  the  city  grew,  attractive  branches  were  opened  in  modern, 
elaborate  buildings.  The  units  recognized  the  advantages  of  self- 
service  and  started  conversion  in  1926.  By  1928  delivery  was  aban- 
doned: 74  trucks  were  auctioned  in  one  day.  By  1929  the  chain  had 
16  large,  well-developed  supermarkets.14 

Drive4n  markets.  The  second  type  of  market  store  was  the  open- 
front,  drive-in  market  that  appeared  in  the  Los  Angeles  area  about 
1925.15  This  type  of  operation  comprised  a  group  of  food  stores  in 

is  Lucius  Flint,  "The  Los  Angeles  Super,"  Chain  Store  Age,  Grocery  Execu- 
tive Edition,  June,  1950,  p.  j34. 

14  Ibid.  .  0     . 

is  Walter  Van  de  Kamp,  "An  Innovation  in  Retail  Selling,"  Magazine  of  Busi- 
ness, July,  1929,  p.  28. 


■*■"  Supermarketing 

a  one-story  building  located  in  neighborhood  and  outlying  sections. 
Parking  was  immediately  adjacent.  Each  of  the  units  of  the  large 
market  store  was  individually  owned  and  operated;  yet,  shoppers 
looked  on  the  market  as  a  single  entity.  Certain  of  these  units  met 
our  current  definition  of  a  supermarket.  One  of  the  most  elaborate 
of  these  drive-ins  was  Chapman  Park  Drive-in  Market  of  Los  An- 
geles. The  land  and  building  alone  represented  an  investment  of 
over  $4GQ,000.16 

Factors  influencing  the  supermarket  innovation  in  the  Los  An- 
geles area.  It  is  not  known  definitely  whether  all  these  units  met 
the  self-service  requirement.  But  writers  in  this  era  were  of  the 
opinion  that  the  following  reasons  were  responsible  for  this  develop- 
ment: 17 

1.  Los  Angeles  had  no  elevated,  subway,  or  other  good  means  of 
transportation  to  the  central  business  district.  Thus,  individuals 
were  forced  to  use  private  motor  cars  as  the  chief  source  of  trans- 
portation. In  1928  the  population  of  California  was  4,556,000.18  Pas- 
senger car  registrations  were  1,799,890;  approximately  35  per  cent 
of  the  inhabitants  had  cars.19  This  percentage  of  the  population  own- 
ing cars  was  substantially  higher  than  the  national  average. 

2.  Parking  in  the  central  area  was  limited,  and  restrictions  were 
severe.  Therefore,  secondary  or  outiying  sections  developed.  These 
invariably  had  some  facilities  for  parking. 

3.  The  wide  use  of  the  automobile  for  shopping  prevailed.  People 
throughout  the  year  were  able  to  circulate  more  freely.  The  climate 
was  favorable  for  outdoor  living  and  activity. 

4.  The  open-front,  drive-in  markets  did  not  have  to  be  erected 

16  "495  Autos  Can  Park  in  This  New  Drive-in  Market,"  Progressive  Grocer 
XIII,  no.  10,  October,  1929,  p.  30. 

^  17  These  are  synopses  of  the  opinions  of  three  authors:  Walter  Van  de  Kamp, 
'  An  Innovation  in  Retail  Selling,"  Magazine  of  Business,  July,  1929,  p.  28;  S.  L. 
Brevit,  "Drive-In  Department  Stores  Gaining  Popularity  in  the  West,"'  Sale's 
Management,  XXX,  no.  3,  January  17,  1931,  p.  118;  and  H.  M.  Foster,  "Threat 
of  the  Supermarket,"  Sales  Management,  XXXII,  no.  9,  April  20,  1933,  p.  436. 

18  U.S.  Bureau  of  Census,  Statistical  Abstract  of  the  United  States,  1929  Gov- 
ernment Printing  Office,  Washington,  D.C.,  1930,  p.  7. 

"  Ibid.,  p.  387. 


Development  of  the  Supermarket  17 

as  substantially  as  in  colder  communities.  The  required  building  in- 
vestment was  less,  and  therefore  business  men  were  more  likely  to 
experiment  with  a  new  type  of  market. 

5.  Land  was  plentiful  and  reasonably  priced.  This  growing  terri- 
tory spread  over  a  large  area  and  was  not  subject  to  central  trans- 
portation limitations. 

6.  The  people  had  a  pioneer  spirit,  believed  in  change,  and  were 
more  adaptable  to  innovations  than  the  inhabitants  of  the  East  or 
Middle  West. 

It  was  surprising  to  note  that  none  of  the  literature  in  this  era 
prior  to  1930  mentioned  low  price  appeal  in  connection  with  these 
'market  stores."  These  factors  indicate  that  this  supermarket  de- 
velopment was  viewed  as  a  regional  affair  suitable  for  California 
or  possibly  the  Southwest.20 

Large  Markets  in  the  Southwest 

One  of  the  earliest  and  the  largest  supermarket  operations  in  the 
Southwest  was  Henke  &  Pillot  of  Houston,  Texas.  This  firm  had  its 
origin  in  1872.21  By  1900  its  downtown  store  had  50,000  sq  ft  of 
space  and  operated  13  departments,  including  its  own  bakery  and 
coffee-roasting  plant.  The  store  grew  to  a  yearly  volume  of  $5,- 
000,000.  As  Houston  spread  out  and  the  automobile  came  of  age, 
two  modern  and  well-equipped  outlying  stores  featuring  large  park- 
ing lots  were  added  in  1926  and  1928.  Some  self-service  operation 
was  adopted  in  the  following  year,  and  the  concern  became  a  full- 
fledged  supermarket.22 

Other  supermarket  operators  in  the  Southwest  at  this  time  were 
J.  Weingarten,  Incorporated,  and  the  ABC  Stores,  Incorporated. 
Mr.  Joe  Weingarten,  chairman  of  the  board  of  J.  Weingarten,  In- 
corporated, has  stated  that  his  first  large  market  operation  which 

20  C.  B.  Larrabee,  "Grocery  Manufacturers  Condemn  Supermarket  Price 
Cutters,"  Printers  Ink,  CLXII,  no.  9,  March  2,  1933,  p.  41. 

21  Charles  N.  Bunnell,  "Henke  &  Pillot  Supermarket  Grew  from  Houston  Pub- 
lic Demand,"  Super  Market  Merchandising,  II,  no.  2,  February,  1937,  p.  3. 

22  "Big  Volume  in  1922,"  Chain  Store  Age,  Grocery  Executive  Edition,  June, 
1950,  p.  j22. 


18  Supermarketing 

could  be  considered  a  supermarket  was  started  in  1918.23  This  store 
had  both  self-service  grocery  and  dairy  departments. 

ERA  OF  THE  "CHEAPY"  SUPERMARKET,  1930  TO  1935 

A  new  type  of  supermarket  developed  in  1930.  It  was  a  depression 
product  and  was  very  different  in  appearance  from  the  attractive 
California  and  Texas  markets.  Yet  this  "cheapy,"  as  it  was  referred 
to,  still  conformed  to  our  definiton,  and  its  development  in  New 
York  and  New  Jersey  awakened  the  country  to  this  retailing  inno- 
vation. 

King  Kullen  and  Big  Bear  Markets 

Michael  Cullen,  an  ex-chain-store  executive,  opened  the  first  suc- 
cessful "cheapy"  in  August,  1930,  in  Jamaica,  Long  Island,  New 
York.24  By  the  end  of  1932,  the  King  Kullen  Markets  had  increased 
to  eight  outlets.  Big  Bear,  a  similar  "cheapy"  supermarket,  followed 
King  Kullen.  In  December,  1932,  Roy  O.  Dawson  and  Robert  M. 
Otis,  together  with  the  American  House  Grocers,  a  local  wholesaler, 
opened  the  Big  Bear  in  Elizabeth,  New  Jersey.  The  location  was  an 
abandoned  factory  of  the  Durant  Motor  Car  Company.25 

The  word  "cheapy"  was  synonymous  with  price  structure  and  ap- 
pearance. The  interior  had  no  partitions,  crude  floors,  bare  ceilings, 
unpainted  fixtures,  glaring  lights,  gaudy  signs,  and  merchandise 
piled  everywhere.  The  units  thrived  in  low-rent  locations  on  the 
fringe  of  thickly  populated  sections.  Later,  other  "cheapy"  units 
were  opened  in  abandoned  warehouses,  empty  department  stores, 
garages,  and  factories. 

The  price  structures  were  even  more  fantastic  when  compared 
with  the  existing  forms  of  food  merchandising.  Their  promotional 
names  (King  Kullen,  The  Price  Wrecker;  and  Big  Bear,  the  Price 
Crusher)  were  in  conformity  with  their  price  schedules.  Compare 

23  M.  M.  Zimmerman,  The  Super  Market  (New  York:  McGraw-Hill  Book 
Co.,  Inc.,  1955),  p.  26. 

24  "The  Cheapy  Thrives,"  Business  Week,  no.  179,  February  8,  1933,  p.  11 

25  M.  M.  Zimmerman,  Super  Market  Spectacular  Exponent  of  Mass  Distribu- 
tion (New  York:  Super  Market  Publishing  Co.,  1937),  p.  25. 


Development  of  the  Supermarket  19 

the  following  King   Kullen  Market  prices  with  those   of   other 


stores:  26 


Elsewhere         King  Kullen 
$  0.09 


AU  10-cent  drug  items $  0.10 

Campbell's   tomato    soup 0.07  U.U4 

U.S.  Rubber  tires  for  Fords     ....  5.50  «3.78 

General  Electric  vacuum  cleaners     .     .  35.00  11. y4 

The  greater  portion  of  space  in  King  Kullen  Markets  was  allo- 
cated to  the  grocery,  meat,  bakery,  and  dairy  departments.  The  re- 
mainder of  the  space  was  leased  to  utensil,  produce,  paint,  hard- 
ware, and  auto  accessory  concessionaires.  A  King  Kullen  MarketS 
required  an  investment  of  $30,000,  which  included  $23,000  for  mer-f 
chandise,  $2,500  for  grocery  equipment,  and  $4,500  for  meat  depart- \ 
ment  equipment.27 

Two  of  King  Kullen's  operating  principles  were  (1)  the  other  de- 
partments must  all  sell  merchandise  at  reduced  prices,  and  (2)  the 
income  from  the  concessions  should  pay  the  rent  of  the  entire  estab- 
lishment.28 

During  this  time  Big  Bear  operated  only  the  grocery  department, 
which  occupied  30  per  cent  of  the  50,000-sq  ft  floor  space.29  It  leased 
concessions  for  meat,  produce,  dairy,  bakery,  candy,  tobacco,  drugs, 
luncheonette,  and  paints.  The  concessionaires  were  charged  5.13  per 
cent  on  their  gross  sales  in  lieu  of  rent  and  other  overhead  expenses. 
The  Big  Bear  made  a  substantial  profit  on  the  leased  departments. 
The  markets  that  mushroomed  following  King  Kullen  and  Big 
Bear  were  generally  of  the  same  "cheapy '  type.  Many  of  these  early 
supers-The  Whale,  Giant  Tiger,  Big  Chief,  Little  Bear-were 
strange  stores,  frequently  referred  to  as  monstrosities  because  of 
their  method  of  operation,  location,  appearance,  and  type  of  struc- 
ture occupied.30  The  King  Kullen  markets  in  modified  form  are  still 
in  operation. 

26  "The  Cheapy  Thrives,"  op.  cit. 

27  Zimmerman,  The  Super  Market,  op.  cit.,  p.  32. 

28  Zimmerman,  Super  Market  Spectacular  Exponent  of  Mass  Distribution,  op. 
cit.,  p.  10. 

30  Carl  W.  Dipman,  "Merchandise  Trend  in  Food  Trade,    Journal  of  Market- 
ing, III,  no.  3,  January,  1939,  p.  269. 


20  Supermarketing 

Factors  Influencing  the  Development 

of  the  "Cheapy"  Supermarket  in  the  East 

The  innovation  of  the  "cheapy"  supermarket  in  the  East  was  at- 
tributed to  the  fact  that  low  income  and  unemployment  made  low 
price  of  paramount  importance  in  the  early  1930's.31  The  super- 
market was  a  lower-cost  type  of  operation  than  the  existing  food 
stores.  It  passed  on  to  the  consumer  some  of  its  savings,  in  the  form 
of  lower  prices. 

Income  and  employment  statistics.  The  year  1932  was  a  depres- 
sion year.  Statistics  in  Table  2-1  indicate  that  the  number  of  em- 

TABLE  2-1  * 

National  Income  and  Employment  in  the 
United  States  for  the  Years  1929  to  1936. 


National  income  Number  of 

Year (in  billions)  gainfully  employed 


1929 
1930 
1931 
1932 
1933 
1934 
1935 
1936 


$83.3 

35,563,000 

68.9 

33,122,000 

54.3 

29,715,000 

40.0 

26,222,000 

42.5 

26,133,000 

50.3 

28,402,000 

55.9 

29,725,000 

65.1 

31,858,000 

*  U.S.  Bureau  of  the  Census,  Statistical  Abstract  of  the  United  States,  Gov- 
ernment Printing  Office,  Washington,  D.C.,  1940,  p.  315. 

ployed  persons  dropped  9,341,000  between  1929  and  1932,  or  by  27 
per  cent.  Unemployment  stood  at  an  all-time  twentieth  century  high 
of  12,300,000  persons.32  Wages  were  sharply  cut;  many  of  the  work- 
ing population  were  on  a  part-time  basis.  The  national  income 
dropped  from  $83.3  billion  in  1929  to  a  low  of  $40.0  billion  in  1932. 

31Larrabee,  op.  cit. 

32  Bureau  of  Labor  Statistics,  Monthly  Labor  Review,  Vol.  35,  no.  1,  Govern- 
ment Printing  Office,  Washington,  D.C.,  1933,  p.  140. 


Development  of  the  Supermarket  21 

The  country  as  a  whole  was  "dissaving"— living  on  past  capital  ac- 
cumulation. This  was  the  economic  setting  for  the  "cheapy"  super- 
market. 

Early  price  policies  of  supermarkets.  Low  price  was  the  basic 
appeal  of  the  "cheapy"  supermarket  as  it  invaded  the  food  store 
field.33  Everything  about  the  market  had  an  air  of  cheapness.  Na- 
tionally advertised  brands  were  placed  on  sale  at  ridiculously  low 
prices.  Loss  leaders  were  common.  Many  of  the  customers  drove  as 
far  as  50  miles  to  the  Big  Bear.34 

King  Kullen's  pricing  format 35  was  to  sell 

300  items  at  cost 
200  items  at  5%  above  cost 
300  items  at  15%  above  cost 
300  items  at  20%  above  cost 

The  appeal  of  low  price  was  nothing  new.36  Chains  had  used  it 
successfully  for  years  and  generally  undersold  the  independents.37 
But  the  supers  "stole  the  thunder"  from  the  chains  and  were  able 
invariably  to  quote  lower  prices  than  the  economy  stores  or  inde- 
pendents.38 

Charles  F.  Phillips  cited  that  on  June  20,  1935,  he  checked  the 
prices  on  34  well-known  branded  items  in  the  Big  Bear  and  in  a 
chain  store.  The  chain  store  prices  for  these  items  averaged  12.8 
per  cent  in  excess  of  those  of  Big  Bear.39  A  study  of  advertised  staple 
merchandise  prices  made  by  M.  M.  Zimmerman  in  16  cities  through- 
out the  country  in  1935  found  that  the  supers  undersold  the  chains 
on  comparable  products  from  4.8  to  22.9  per  cent.40 

33  Zimmerman,  The  Supermarket  Spectacular  Exponent  of  Mass  Distribution, 
op.  cit.,  p.  10. 

34  Ibid.,  p.  11. 

35  Zimmerman,  The  Super  Market,  op.  cit.,  p.  33. 

36  Charles  F.  Phillips,  "The  Supermarket,"  Harvard  Business  Review,  XVI, 
no.  2,  Winter,  1938,  p.  192. 

37  Federal  Trade  Commission,  Chain  Stores,  Final  Report  on  the  Chain  Store 
Investigation,  submitted  to  74th  Congress,  1st  session,  Senate,  Document  4, 
Government  Printing  Office,  Washington,  D.C.,  Dec.  14,  1934,  p.  67. 

38  Phillips,  op.  cit.,  p.  196. 

39  Ibid.,  p.  198. 

40  Zimmerman,  The  Supermarket  Spectacular  Exponent  of  Mass  Distribution, 
op.  cit.,  p.  53. 


22  Supermarketing 

With  regard  to  their  loss-leader  policies,  Phillips  stated: 

There  is  no  doubt  but  that  many  supermarkets  have  been  large  users  I 
of  loss  leaders  in  the  sense  that  many  items  have  been  sold  at  prices  only 
slightly  above  their  actual  cost  to  the  operator.  This  practice,  of  course, 
gives  the  supermarket  the  appearance  of  being  a  low  price  institution.  At 
the  same  time  it  is  evident  that  much  of  the  cry  against  this  type  of  opera- 
tion for  the  use  of  loss  leaders  is  not  valid  because  many  supermarkets  are 
in  a  position  to  quote  prices  below  those  of  their  competitors  primarily 
because  of  their  low  cost  of  operations,  but  also  in  some  degree  because 
of  their  buying  practices.41 

Comparative  margins,  expenses,  and  profits  of  independents, 
chains,  and  early  supers.  Prior  to  the  development  of  the  super- 
market industry  in  the  1930's,  the  retail  grocery  distribution  industry 
had  its  battle  lines  drawn  between  chains  and  independents.  The 
operating  costs  of  independents  in  the  Louisville  area  in  the  late 
1920's  are  indicated  in  Table  2-2. 

TABLE  2-2  * 

Profit  and  Loss  Statement  for  the  Average  Grocery  Store  in  the 
Louisville  Survey  as  a  Percentage  of  Sales  for  the  Year  1929. 

Sales 100.00 

Cost  of  sales 74.19 

Gross   margin 25.81 

Expenses 

Miscellaneous      ....     2.53 

Owners'  salary  ....     4.01 

Other  salaries     ....     6.31 

Rent 98 

Utilities 1.23 

Delivery 2.77 

Advertising 31 

Insurance 15  18.29 

Net  profit 7.52 

*  U.S.  Department  of  Commerce,  Distribution  Cost  Studies  Number  1, 
Louisville  Grocery  Survey,  Part  IllA,  Government  Printing  Office,  Washington, 
D.C.,  1932,  pp.  15-23. 

41  Phillips,  op.  cit. 


Development  of  the  Supermarket  23 

Other  studies  of  independent  store  operations  showed  gross  mar- 
gins to  be  closer  to  20  per  cent  and  profits  varying  from  1.6  to  2.6 
per  cent  of  sales,  depending  upon  the  type  of  operation.42 

The  Great  Atlantic  and  Pacific  Tea  Company  for  the  year  1929 
operated  15,150  smaller-type  economy  stores,  with  the  average 
weekly  sales  of  $1,317  per  store.  A  breakdown  of  these  operations 
for  1929,  1933,  and  1935  is  shown  in  Table  2-3.  The  gross  margin 

,    Table  2-3  * 

Condensed  Profit  and  Loss  Statement  of  the  Retail  Store 

Operation  of  the  Great  A  &  P  Tea  Company  as  a 

Percentage  of  Sales  for  the  Years  1929  to  1935. 


1929  1933  1935 


Sales 100.00  100.00  100.00 

Cost  of  sales 81.64  78.10  80.50 

Gross  margin 18.36  21.90  19.50 

Total  operating  expenses     .     .       15.52  19.08  17.56 

Net  profit 2.84 2u82 1-94 

*  United  States  v.  The  Great  A  ir  P  Tea  Company,  U.S.  Circuit  Court  of 
Appeals,  7th  district,  Docket  9221,  Records  &  Briefs,  Vol.  II,  p.  162. 

for  chain  stores  as  a  group  for  1929  was  18.99  per  cent,  and  for  inde- 
pendents, 23.01  per  cent  of  sales.43  These  statistics,  published  later, 
support  Professor  Schmalz's  contention  that,  generally,  the  chains 
were  in  a  position  to  undersell  the  independent  grocer  at  that  time. 

When  the  "cheapy"  supermarket  entered  the  field  in  the  depres- 
sion years,  it  operated  at  even  a  lower  gross  margin  than  the  chain. 
The  operating  statement  of  the  Big  Bear  super  in  Elizabeth,  New 
Jersey,  for  1933  is  shown  in  Table  2-4. 

Big  Bear  earned  a  substantial  profit  from  concessions  and  was  in 
a  position  to  operate  its  grocery  department  on  a  12  per  cent  gross. 

42  A  series  of  studies  made  in  the  1920's  were  quoted  by  Carl  N.  Schmalz, 
"Independent  Stores  vs.  Chains  in  the  Grocery  Field,"  Harvard  Business  Re- 
view, IX,  no.  4,  July,  1931,  p.  431. 

43  Federal  Trade  Commission,  Chain  Stores,  op.  cit. 


24  Supermarketing  \ 

TABLE  2-4  * 

Operating  Statement  of  the  Big  Bear,  Elizabeth,  New  Jersey, 
for  the  Year  1933. 


% 
Dollar  of  sales 

Grocery  department  sales    ....     $2,188,403  100  00 

Cost  of  sales 1,925,795  87^9 

Gross  profit $    262,608  12.01 

Expenses 

Rent $15,516  .71 

Payroll 79,545  3.64 

Light  and  heat  ....  7,881  .35 

Advertising 28,974  1.32 

Handling 20,157  .93 

Administration    ....  11,248  .51 

Clerical 6,915  .32 

Insurance 3,523  .16 

Miscellaneous     ....  7,462  .34 

Taxes 1,094  .05 

Depreciation      ....  219          182,534  .01                     8.34 

Net  profit  from 

grocery  operators $  80,074  3.67 

Rental  from  concessions     ....  86,434 

Net   profit $166,508  

*  M.  M.  Zimmerman,  The  Supermarket  Spectacular  Exponent  of  Mass  Dis- 
tribution (New  York:  Super  Market  Publishing  Company,  1937),  p.  14. 

Furthermore,  the  accounting  system  did  not  adequately  show  the 
operating  profit  because  all  rental  and  light  for  the  store  was  charged 
to  Big  Bear  grocery  department  even  though  it  occupied  only  30 
per  cent  of  the  space. 

Similarly,  King  Kullen  stores  made  a  gross  profit  of  9  per  cent  on 
grocery  and  fruit  and  vegetables  and  a  net  profit  of  2V6  per  cent! 
Their  net  profit  on  meat  sales  was  3  per  cent.  These  remarkable  op- 
erating results  and  profits  were  the  result  of  the  innovation  of  the 
"cheapy"  supermarket. 

During  the  early  1930's  other  mushrooming  supermarkets  main- 
tained an  operating  advantage  over  the  chain  economy  stores  and 


Development  of  the  Supermarket  25 

the  small  independents.  Gross  margins  varied  from  10  to  14  per  cent 
of  sales.44  John  Hartford,  president  of  the  A  &  P,  reported  that  super- 
market competitors  in  Detroit  during  this  period  operated  on  a  12.5 
per  cent  gross  and  earned  a  2.5  per  cent  net.45  He  said  that  the 
established  A  &  P  aim  was  to  operate  at  a  12  per  cent  gross  and  2 
per  cent  net.46 

The  statistics  on  supermarket  operation  in  this  era  indicate  that 
it  was  extremely  difficult  for  the  conventional  A  &  P  economy  store 
and  the  average  independent  combination  market  to  compete  with 
supers. 

PERIOD  OF  EXPERIMENTAL  GROWTH  AND 
DEVELOPMENT,  1935  TO  1946 

The  markets  that  mushroomed  following  King  Kullen  and  Big 
Bear  were  generally  of  the  same  "cheapy"  variety.  This  type  of 
store,  however,  rapidly  lost  its  appeal  when  more  attractive  super- 
markets were  opened,  starting  in  1935.47  By  this  time  the  principle  of 
the  supermarket  operation  had  been  proved  sound.  National  income 
and  employment  had  risen;  new  capital  began  to  be  attracted  to  the 
industry.  "Traded  up"  supermarkets  began  to  multiply  in  superior 
locations.  Larger  investments  in  equipment  and  buildings  followed 
and  resulted  in  improved  external  and  internal  appearances  of  the 
stores,  which  began  to  take  on  the  semblance  of  supermarkets  as  we 
know  them  today. 

Statistics  on  supermarkets  kept  yearly,  beginning  in  1936,  are  re- 
corded in  Table  1-2  and  indicate  the  number  of  supers  and  their  vol- 
ume increase  every  year  thereafter.  Such  chains  as  A  &  P,  Kroger, 
First  National  Stores,  and  American  Stores  opened  experimental 
supermarket  units  at  this  time.48  But  it  was  not  until  1937,  that  the 

44  Phillips,  op.  cit.,  p.  192. 

45  United  States  v.  The  Great  A  6-  P  Tea  Company,  U.S.  Circuit  Court  of 
Appeals,  7th  district,  Docket  9221,  Records  &  Briefs,  Vol.  II,  p.  194. 

46  Ibid.,  p.  194. 

47  Carl  W.  Dipman,  "Merchandise  Trend  in  Food  Trade,"  Journal  of  Market- 
ing, III,  no.  3,  January,  1939,  p.  269. 

48  M.  M.  Zimmerman,  "The  Supermarket  and  the  Changing  Retail  Structure," 
Journal  of  Marketing,  VI,  no.  2,  April,  1941,  p.  403. 


26  Supermarketing 


TABLE  2-5  * 

Operating  Statement  of  an  Average  Independent  Combination 
Market  as  a  Percentage  of  Sales  for  the  Year  1935. 

Sales 100.0 

Cost  of  sales 81.7 

Gross  margin 18.3 

Expenses 

Utilities 8 

Advertising 6 

Rent 1.4 

Wages 5.4 

Owner's 4.7 

Taxes 4 

Other SA 16/7 

Net  profit 1.6 

*  Standard  Ratios  for  Retailing  (New  York:  Dun  &  Bradstreet,  Inc.,  1936), 
p.  8. 

industry  leader,  the  A  &  P,  decided  to  make  the  supermarket  the 
next  step  in  its  development.49  Some  of  the  first  chain  supers  were 
opened  under  different  names;  for  example,  the  Kroger  Company 
operated  stores  in  Cincinnati  under  the  name  "Pay'n  Takit."  The 
increase  in  the  number  of  supermarkets  in  the  late  1930's  was  due 
largely  to  the  switch  of  chains  to  supers  ( see  Table  1-2 ) .  From  1936 
to  1938  the  number  of  supermarkets  skyrocketed  from  1,200  to  4,982. 
Statistics  on  the  number  of  supers  for  the  industry  leader  (A  &  P) 
are  given  in  Table  2-6;  they  indicate  the  rapid  shift  to  supermarket 
operation.  In  many  urban  areas  the  most  strategic  locations  for 
supermarkets  already  were  well  developed  with  such  outlets.50 

The  first  supermarket  convention  in  1937  gave  the  industry  a  de- 
gree of  unity.  At  that  time  the  industry's  trade  association,  Super 
Market  Institute,  was  founded.  The  Institute,  which  has  lent  or- 
ganization to  the  industry  and  has  furnished  the  widely  scattered 

49  United  States  v.  The  Great  A  &  P  Tea  Company,  op.  cit.,  p.  192. 

50  William  Applebaum,  "Adjustment  of  Retailing  to  1941  Conditions,"  Journal 
of  Marketing,  V,  no.  4,  April,  1941,  p.  438. 


Development  of  the  Supermarket  27 

TABLE  2-6  * 

Number  of  A  &  P  Supermarkets  and  Small  Economy  Stores 
for  the  Years  1936  to  1943. 


Number  of  Number  of  small 

Year  supers  economy  stores 

1936  20  14,426 

1937  282  12,776 

1938  771  9,900 

1939  1,119  7,902 

1940  1,396  5,677 

1941  1,552  4,490 

1942  1,633  4,188 

1943  1,646  4,105 


*  United  States  v.  The  Great  A  ir  P  Tea  Company,  U.S.  Circuit  Court  of 
Appeals,  7th  district,  Docket  9221,  Records  and  Briefs,  Vol.  I,  p.  323. 

members  a  common  bond,  has  grown  from  32  pioneer  members  to 
the  point  where  it  currently  embraces  over  744  companies  operat- 
ing 11,388  outlets.51  In  addition  to  sponsoring  the  annual  meetings 
at  which  current  major  industry  problems  are  discussed,  the  Super 
Market  Institute  fosters  educational  activities,  establishes  ethical 
business  practices,  promotes  research  activities,  and  serves  as  a 
clearing  house  for  information.  More  recently  adopted  activities 
include  the  intra-industry  figure  exchange  and  the  executive  train- 
ing program.  Credit  also  must  be  given  to  M.  M.  Zimmerman  for 
the  development  and  guidance  of  this  industry,  especially  in  the 
formative  years.  In  1936  he  founded  the  publication,  Super  Market 
Merchandising,  which  has  been  a  major  source  of  information  for 
the  supermarket  operators. 

The  years  1941  and  early  1942  showed  one  of  the  largest  increases 
in  the  number  of  supers.  The  number  of  units  increased  by  2,000. 
Many  chains  and  independents  displayed  feverish  activity,  appar- 
ently in  an  attempt  to  beat  the  impending  building  restriction  that 

51  The  Super  Market  Industry  Speaks— 1959  (Chicago:  Super  Market  Insti- 
tute), p.  15. 


28  Supermarketing 

resulted  from  World  War  II.52  During  the  ensuing  war  years,  the 
industry  showed  little  or  no  expansion.  This  was  accounted  for  by 
building  material  shortages,  lack  of  adequate  help,  food  rationing, 
price  controls,  rationing  which  limited  the  use  of  the  automobile, 
desire  of  people  to  know  their  grocers  more  intimately  so  as  to  ob- 
tain advantages  in  food  purchasing,  reduced  significance  of  price 
as  a  result  of  swollen  consumer  incomes,  and  food  shortages.53 
Nevertheless  the  supers  survived  this  era,  partly  through  the  in- 
creased employment  of  women,  the  addition  of  nonfood  lines,  the  J 
maintenance  of  as  large  an  inventory  of  national  brands  as  possible, 
and  self-service  expansion.54 

Prior  to  World  War  II  supermarkets  as  a  whole  concentrated 
mainly  on  the  sale  of  foods.  During  the  war  the  supers  began  to  fea- 
ture more  nonfood  lines.  The  success  of  this  policy  led  to  the  addi- 
tion of  more  nonfood  departments  after  the  war.55 

POSTWAR  PERIOD  OF  MODERN  SUPERMARKET 

EXPANSION 

The  industry  again  experienced  renewed  impetus  in  1946.  The 
population  increase  and  outward  push  from  the  center  of  cities,  plus 
the  building  of  new  homes  in  the  suburbs,  offered  new  location  op- 
portunities. Satisfactory  profit  margins  continued  to  make  this  a 
mecca  for  expansion.  Furthermore  the  industry  was  able  to  obtain 
capital.  Many  of  the  firms  which  less  than  15  years  earlier  were  small 
operations  or  nonexistent  entered  the  capital  markets  by  publicly 
selling  securities  in  order  to  obtain  funds  for  expansion.  Many  of 
the  independent  food  retailers  realized  they  could  not  compete  with 
this  new  method  of  merchandising  and  converted  their  stores  into 
supermarkets.  In  this  they  were  aided  by  voluntary  chains  and  alert 

52  Carl  W.  Dipman,  "Changes  in  Food  Distribution,"  Journal  of  Marketing, 
VI,  no.  4,  April,  1942,  p.  48. 

53  M.  M.  Zimmerman,  "Super  Market  Sales  &  Profit  Trends  1941-43,"  Journal 
of  Marketing,  X,  no.  2,  October,  1944,  p.  162. 

54  M.  M.  Zimmerman,  "Tomorrow's  Super  Market,"  Journal  of  Marketing,  X, 
no.  4,  April,  1946,  p.  384. 

55  M.  M.  Zimmerman,  Super  Market— Its  Growth  and  Future  (New  York: 
Super  Marketing  Merchandising  Publishing  Co.,  1948),  p.  4. 


Development  of  the  Supermarket  29 

wholesalers  who  helped  them  to  streamline  their  methods  of  opera- 
tion. New  stores  were  built  with  greater  floor  space  and  parking 
facilities.  Many  stores  were  remodeled.  More  elaborate  interiors 
and  exteriors  became  the  vogue,  with  services  such  as  music  and  air 
conditioning  addea^The  statistics  in  Table  1-2  indicate  an  increase 
of  213  per  cenfTifthe  number  of  supers  from  1945  to  1958  and  a 
rise  in  sales  volume  of  637  per  cent  for  the  same  period.  By  1958 
the  number  of  supermarkets  had  reached  20,413  units. 

Other  features  that  aided  this  tremendous  postwar  expansion  in- 
cluded the  further  shift  of  local,  regional,  and  national  chains  from 
small  to  large  store  operation.  In  addition,  the  increased  promotion 
and  ballyhoo  techniques  of  supermarket  operators  to  increase  store 
traffic  made  the  suburban  shopping  center  and  the  supermarket  a 
sociological  mecca  for  the  American  family.  Finally,  the  constant 
pressure  to  reinvest  earnings  into  profitable  merchandising  opera- 
tions aided  the  expansion  movement. 

One  of  the  most  recent  trends  in  the  postwar  era  is  the  increased 
emphasis  on  horizontal  integration  through  acquisition  on  the  part 
of  the  larger  concerns.  Examples  of  this  are  the  recent  foragings  of 
the  National  Tea  Company  and  the  ACF-Wrigley  Stores,  Incorpo- 
rated. The  keynote  seems  to  be  "acquire  or  expire."  More  and  more 
the  emphasis  is  not  on  "big  business"  but  on  "bigger  business." 

SUMMARY 

The  first  supers  were  a  relatively  few  Piggly  Wiggly  stores.  These  were 
followed  by  the  California  supers  and  drive-in  markets,  which  appeared 
to  be  a  product  of  primarily  local  forces.  Then  came  a  new  supermarket, 
the  "cheapy,"  which  flourished  in  the  depression  years  of  the  1930's  and 
which  made  low  price  its  basic  appeal.  This  was  followed  by  the  policy 
of  "trading-up"  the  stores.  The  national  food  chains  joined  the  movement 
after  1936  and  gave  it  impetus.  The  World  War  II  period  saw  changes 
in  policies  but  relatively  no  change  in  number  of  markets.  The  postwar 
period  was  one  of  vast  expansion  in  number  of  units,  size  of  stores,  serv- 
ices, and  dollar  volume.  The  industry  has  become  one  of  bigger  and 
bigger  business. 


EXTERNAL  FACTORS 
THAT  INFLUENCED  THE 
GROWTH  OF  THE 
SUPERMARKET  INDUSTRY 


INTRODUCTION 

The  development  of  the  supermarket,  including  the  factors  that 
influenced  its  innovation,  was  discussed  in  the  preceding  chapter. 
It  was  shown  that  the  early  supers,  with  the  exception  of  California 
and  the  Southwest,  were  largely  of  the  '  cheapy"  variety.  But  from 
1935  on,  the  supermarket  industry  continued  to  gain  new  members 
at  a  remarkable  rate  and  began  to  improve  the  appearance,  equip- 
ment and  location  of  its  stores.1 

This  chapter  and  the  subsequent  four  analyze  the  factors  that 
aided  this  remarkable  growth.  For  expedience  these  are  broken 
down  into  external  and  internal  considerations.  The  former  are  ex- 
amined in  this  chapter  and  include: 

1.  Changes  in  personal  disposable  income  and  personal  consump- 
tion expenditures 

2.  Shifts  in  upper  income  shares 

3.  Changes  in  expenditures  in  food  stores 

4.  Changes  in  the  pattern  of  food  consumption 

1  Charles  F.  Phillips,  "The  Supermarket,"  Harvard  Business  Review,  XVI,  no. 
2,  Winter,  1938,  p.  192. 
30 


External  Factors  31 

5.  Technological  developments  and  their  adoption 

6.  Population  growth  and  shift  to  the  suburbs 

7.  Retail  trend  toward  decentralization 

8.  Shifts  in  consumer  buying  habits  (including  one-stop  shopping 
and  scrambled  merchandise)  2 

9.  Additional  external  factors 

Still  other  external  influences  were  present  in  the  economy  such 
as  industrial  decentralization,  concentration  of  power  among  food 
manufacturers  and  higher  literacy;  but  the  above  listed  factors  ap- 
peared to  be  the  most  pertinent  to  the  problem. 

CHANGES  IN  PERSONAL  DISPOSABLE  INCOME 
AND  PERSONAL  CONSUMPTION  EXPENDITURES 

As  previously  indicated,  the  national  income  of  the  United  States 
suffered  a  substantial  drop  from  $83  billion  in  1929  to  $40  billion  in 
1932.3  Employment  decreased  from  35,563,000  in  1929  to  26,222,000 
in  1932.4  It  was  at  this  time  that  the  "cheapy"  supermarket  started 
its  expansion-offering  "food  for  less."  But  the  "cheapy"  depression 
product  was  short-lived  and  soon  was  replaced  by  the  more  elab- 
orately equipped  and  housed  super. 

From  1935  to  date,  the  total  and  the  per  capita  disposable  per- 
sonal income  and  personal  consumption  expenditures  increased  sub- 
stantially. These  statistics  are  shown  in  Table  3-1  together  with  the 
cost  of  living  index  which  also  rose  in  this  interval,  although  by  a 
lesser  amount  than  the  per  capita  income  and  expenditures.  The 
trend  thus  has  been  for  each  person  to  have  more  income  to  spend 
and  to  need  relatively  less  of  this  larger  income  for  basic  living  pur- 
poses. The  large  personal  consumption  expenditures  indicate  that 

2  The  term  scrambled  merchandise  was  used  by  Malcolm  P.  McNair  to  indi- 
cate the  merchandising  of  a  commodity  in  retail  stores  in  which  the  product 
was  basically  foreign.  This  discussion  is  found  in  an  article  by  Malcolm  P.  Mc- 
Nair, "Trends  in  Large-Scale  Retailing,"  Harvard  Business  Review,  X,  no.  1, 
Fall,  1932,  p.  31. 

3  These  statistics  are  contained  in  Table  2-1. 
*  Ibid. 


32 


Supermarketing 


TABLE  3-1 

Total  Disposable  Personal  Income,  Total  and  Per  Capita 

Personal  Consumption  Expenditure,  and  the  Cost  of 

Living  Index  in  the  United  States  for 

the  Years  1935  to  1958. 


Disposable 

Personal 

Per  capita 

personal 

consumption 

personal 

Cost  of 

income  * 

expenditures  f 

consumption 

living 

Year 

(billions) 

(billions) 

expenditure  \ 

index  § 

1935 

$  58.0 

$  56.2 

$    443 

58.7 

1936 

66.1 

62.5 

486 

59.3 

1937 

71.1 

67.1 

520 

61.4 

1938 

65.5 

64.5 

496 

60.3 

1939 

70.2 

67.5 

508 

59.4 

1940 

75.7 

72.1 

545 

59.9 

1941 

92.0 

82.3 

616 

62.9 

1942 

116.7 

91.2 

673 

69.7 

1943 

132.4 

102.2 

745 

74.0 

1944 

147.0 

116.6 

841 

75.2 

1945 

151.1 

123.1 

879 

76.9 

1946 

158.9 

146.9 

960 

83.4 

1947 

169.5 

165.6 

1,150 

95.5 

1948 

188.4 

177.9 

1,200 

102.8 

1949 

186.4 

180.6 

1,210 

101.8 

1950 

204.3 

194.0 

1,280 

102.8 

1951 

225.0 

208.3 

1,358 

111.0 

1952 

237.4 

218.3 

1,401 

113.5 

1953 

250.2 

230.5 

1,456 

114.4 

1954 

254.4 

236.5 

1,467 

114.8 

1955 

274.4 

254.0 

1,546 

114.5 

1956 

290.4 

269.4 

1,602 

116.2 

1957 

305.1 

284.4 

1,661 

120.2 

1958 

311.6 

290.6 

1,669 

123.5 

*  Statistics  for  1935  to  1950,  U.S.  Bureau  of  the  Census,  1951  Supplement, 
Survey  of  Current  Business,  Government  Printing  Office,  Washington,  D.C., 
1952,  p.  8.  Statistics  for  1951  to  1956,  U.S.  Bureau  of  the  Census,  Statistical 
Abstract  of  the  U.S.,  Government  Printing  Office,  Washington,  D.C.,  1959,  p. 
305. 

f  Ibid. 

t  This  is  the  Bureau  of  Labor  Statistics  Cost  of  Living  Index  in  which  sta- 
tistics for  the  years  1947-49  equal  100.  U.S.  Bureau  of  the  Census,  Statistical 
Abstract  of  the  U.S.,  1959,  op.  cit.,  p.  338. 

§  Calculated  by  dividing  Personal  Consumption  Expenditure  by  total  popu- 
lation data  contained  in  the  Statistical  Abstract  of  the  U.S.,  op.  cit.,  p.  5. 


External  Factors  33 

people  did  spend  liberally  in  this  era;  and  as  shown  later  in  this 
chapter,  food  stores  did  capture  a  greater  portion  of  the  consumer 
dollar  through  the  sale  of  "luxury"  food  items  and  newly  added 
nonfood  lines. 

SHIFTS  IN  UPPER  INCOME  SHARES 

A  parallel  to  the  above  is  the  study  by  Simon  Kuznets  on  the 
upper  income  shares  of  the  national  income.5  During  the  interwar 
decades  (1919-1938)  before  income  taxes,  the  top  5  per  cent  of 
the  population  had  30  per  cent  of  the  income;  during  1947-1948, 
they  had  only  18  per  cent  of  the  income. 

Up  to  1938  the  income  percentage  of  the  top  5  per  cent  varied 
only  by  4.7  percentage  points  in  either  direction  from  the  1919-1938 
average  of  30  per  cent;  6  but  from  1938  on,  the  upper-share  income 
declined  steadily.  This  decline  was  unparalleled  in  the  financial  rec- 
ords for  its  magnitude  and  persistence. 

The  most  recent  statistics  on  the  distribution  of  personal  income 
indicate  that  the  basic  trend  in  upper-share  income  has  continued. 
Between  1946  and  1955,  the  top  20  per  cent  of  the  income  units 
dropped  from  46.1  per  cent  to  44.6  per  cent  of  total  personal  in- 
come.7 The  biggest  gains  were  registered  by  the  middle  income 
groups. 

There  were  various  causes  for  this  shift.  The  most  important  were 
(1)  the  reduction  of  unemployment,  (2)  the  growth  of  unions,  (3) 
the  tax  structures,  and  (4)  the  marked  increase  in  total  income  that 
flowed  to  the  lower  income  groups,  particularly  the  farmers  and 
wage  earners.8  This  increase  in  income  that  precipitated  to  the  lower 
income  groups  was  more  likely  to  be  spent  on  food  as  well  as  other 
purchases. 

5  Simon  Kuznets,  Shares  of  Upper  Income  Groups  in  Income  and  Savings 
(New  York:  National  Bureau  of  Economic  Research,  Inc.,  1953). 

6  Ibid.,  p.  XXXV. 

7  U.S.  Department  of  Commerce,  Survey  of  Current  Business,  Government 
Printing  Office,  Washington,  D.C.,  July,  1958,  p.  13. 

8  Kuznets,  op.  cit. 


34  Supermarketing 

CHANGES  IN  THE  PATTERN  OF  FOOD  CONSUMPTION 

Shifts  in  the  dietary  habits  of  the  American  people  significantly 
altered  the  pattern  of  food  store  sales  from  1929  to  1954.  The  trend 
in  consumption  was  away  from  less  expensive  bulk  foods  such  as 
potatoes  and  grain  products  and  toward  the  more  costly  leafy  green 
vegetables,  fresh  fruits,  and  meat  and  dairy  products  as  noted  in 
Table  3-2.  On  a  per  capita  basis  the  consumption  of  potatoes  in 
1954  was  only  106  lb  as  compared  with  169  lb  in  1929.  The  con- 
sumption of  dairy  products  in  the  same  period  rose  from  379  lb  to 
417  lb  per  person;  and  meat,  poultry,  and  seafood  increased  on  a 
per  capita  basis  from  134  to  169  lb.  These  changes  in  food  consump- 
tion habits  benefited  in  general  the  food  store  industry  and  in  par- 
ticular the  supermarket.  The  latter  increased  its  volume  in  the  above 
lines  and  realized  larger  margins.9 

TABLE  3-2  * 


*  Bureau  of  Agricultural  Economics,  U.S.  Department  of  Agriculture,  Con- 
sumption  of  Food  in  the  U.S.,  Agriculture  Handbook  No.  62,  Government  Print- 
ing Office,  Washington,  D.C.,  October,  1955,  p.  43. 

9  Herman  L.  Myers  and  Forrest  Scott,  The  Rise  of  the  Super  Market,  U.S. 
Department  of  Agriculture,  Bureau  of  Agricultural  Economics,  MTS-103,  Gov- 
ernment Printing  Office,  Washington,  D.C.,  December,  1951,  p.  10. 


Yearly  Consumption  of  Food  Products 

per  Capita, 

Retail-Weight  Equivalent 

(in  pounds) 

by  Major 

Food  Groups  for  the  Years  1929, 

1948, 

and  1954. 

Product 

1929 

1948 

1954 

Dairy  products 

379 

412 

417 

Eggs 

40 

47 

52 

Meat,  fish,  and  poultry 

134 

151 

169 

Potatoes  and  sweet  potatoes 

169 

116 

106 

Leafy  green  and  yellow 

vegetables 

102 

111 

112 

Citrus  fruit  and  tomatoes 

79 

116 

108 

Flour  and  cereal  products 

234 

169 

156 

Ice  cream 

11 

18 

17 

External  Factors 


35 


CHANGES  IN  EXPENDITURES  IN  FOOD  STORES 

Statistics  in  Table  3-3  indicate  that  food  store  sales,  both  on  a 
total  and  a  per  capita  basis,  rose  substantially  from  1935  to  1958. 
This  gain  has  been  attributed  not  only  to  a  rise  in  prices  but  also  to 
an  increase  in  total  and  per  capita  quantities  of  products  sold  in 
food  stores.10 

Furthermore,  the  food  store  group  not  only  gained  absolutely  in 
dollar  sales  but  captured  a  greater  portion  of  the  consumer's  dollar. 
The  statistics  in  Table  3-4  show  that  15  cents  out  of  every  dollar  of 
personal  consumption  expenditure  went  to  the  food  store  in  1935. 
The  trend  from  1935  to  1958  has  been  upward,  and  in  1958,  17.31 
cents  out  of  every  consumer  dollar  spent  went  to  the  food  store 
group. 

TECHNOLOGICAL  DEVELOPMENTS  AND 
THEIR  ADOPTION 

Technological  developments  such  as  the  automobile  and  the  re- 
frigerator, and  their  wide  use  in  daily  living,  enabled  a  change  to 
take  place  in  the  food  store  sales  pattern.  These  developments  in- 
fluenced changes  in  buying  habits,  which  in  turn  benefited  certain 
types  of  food  stores  (particularly  the  supermart)  to  the  detriment 
of  other  kinds  of  food  store  outlets.  Of  the  many  developments  that 
occurred,  three  are  selected  for  study  as  logically  being  the  most 
important: 

1.  The  automobile 

2.  Refrigeration 

3.  New  food  manufacturing  and  processing  techniques 

io  The  Retail  Food  Price  Index  of  the  Bureau  of  Labor  Statistics  ( recorded 
in  Table  3-3)  increased  from  49.7  in  1935  to  120.3  in  1958.  However,  this  rise 
was  relatively  less  than  the  total  food  store  sales  and  the  per  capita  food  store 
sales. 


36  Supermarketing 


TABLE  3-3 

Total  Food  Store  Sales,  Per  Capita  Food  Store  Sales, 
and  Retail  Food  Price  Index  for  the  Years  1935  to  1958. 


Year 

Food  store 

sales 
(in  billions)  * 

Per  capita 

food  store 

sales  f 

Retail  food 
price  index  $ 

1935 
1936 
1937 

$  8.4 
9.0 
9.7 

$  66 

72 
75 

49.7 
50.1 
52.1 

1938 
1939 
1940 

9.5 
10.2 
10.9 

73 
78 
83 

48.4 
47.1 
47.8 

1941 
1942 
1943 

12.6 
15.8 
17.5 

95 
117 

128 

52.2 
61.3 
68.3 

1944 
1945 
1946 

19.0 
19.8 
24.2 

138 
141 
171 

67.4 
68.9 
79.0 

1947 
1948 
1949 

28.4 
31.0 
31.0 

197 
210 
208 

95.9 
104.1 
100.0 

1950 
1951 
1952 

32.8 
37.6 
39.8 

215 

244 
254 

101.2 
112.6 
114.6 

1953 
1954 
1955 

40.8 
41.6 
42.0 

255 
257 
264 

112.8 
112.6 
110.9 

1956 
1957 
1958 

44.2 
47.8 
50.3 

274 
280 
289 

111.7 
115.4 
120.3 

*  These  statistics  do  not  contain  sales  of  the  country  general  store.  U.S.  Bu- 
reau of  the  Census,  Statistical  Abstract  of  the  U.S.,  Government  Printing  Of- 
fice, Washington,  D.C.,  1959,  p.  833. 

f  Calculated  by  dividing  food  store  sales  by  the  total  population  statistics  con- 
tained in  the  Statistical  Abstract  of  the  U.S.,  1959,  p.  5. 

t  Ibid.,  p.  328. 


External  Factors  37 

TABLE  3-4  * 

Percentage  of  Personal  Income  Expenditure 
Spent  in  Food  Stores. 

Year  % 

1935 15.00 

1940 15.18 

1945 16.15 

1950 16.75 

1955 17.17 

1956 17.29 

1957 16.83 

1958 17.31 

*  Calculated  by  dividing  total  food  store  sales  ( data  contained  in  Table  3-3 ) 
by  total  personal  consumption  expenditures  (statistics  found  in  Table  3-1). 

Automobile 

Statistics  on  car  registrations  are  shown  in  Table  3-5.  From  1915 
to  1920,  motor  vehicle  registration  increased  308  per  cent.  From  1920 
to  1930  an  additional  190  per  cent  gain  was  experienced.  By  1930 
cars  in  operation  totaled  26.5  million.  These  substantial  increases 
on  a  national  basis  occurred  when  the  supermarket,  except  in  the 
Los  Angeles  area,  was  a  rarity.  In  California  there  was  early  accept- 
ance and  wide  use  of  the  automobile  for  shopping. 

The  "cheapy"  supermarket  of  the  early  1930's  had  "low  prices" 
as  the  basic  appeal,  and  the  significance  of  the  automobile  was  to 
furnish  transportation  to  the  supers  and  to  haul  away  the  food  bar- 
gains, since  the  units  in  general  were  located  in  fringe  areas  poorly 
serviced  by  public  transportation. 

From  1930  to  1950  car  registrations  increased  from  26,532,000  to 
48,567,000.  By  1958  registrations  rose  to  68,299,000  cars.  These  sta- 
tistics are  contained  in  Table  3-5.  This  substantial  gain  occurred 
concomitantly  in  the  era  of  vast  supermarket  growth.  Not  only  did 
car  registration  increase,  but  cars  were  distributed  widely  among 
the  population.  They  were  used  more  in  daily  living,  driven  more 
by  women,  and  used  actually  for  shopping.  It  was  in  this  manner 


38  Supermarketing 

that  the  automobile  and  its  use  can  be  said  to  have  played  an  in- 
tegral part  in  the  supermarket  development. 

Refrigeration 

A  second  technological  development  that  influenced  the  pattern 
of  food  store  sales  was  the  principle  of  refrigeration.  In  Table  3-6 


TABLE  3-5 


Motor  Vehicle  Registrations  (in  thousands)  in  the 
United  States  for  the  Years  1915  to  1958. 

1915 2,491 

1920 9,239 

1925 19,941 

1930 26,532 

1935     .     . 32,035 

1940 30,638 

1945 44,140 

1950 48,567 

1955 62,020 

1956 64,437 

1957 67,131 

1958 68,299 

*  U.S.  Bureau  of  Census,  Statistical  Abstract  of  the  U.S.,  Government  Print- 
ing Office,  Washington,  D.C.,  1959,  p.  559. 


are  statistics  on  manufacturers'  unit  sales  of  refrigerators.  The  adop- 
tion for  home  use  started  in  the  late  1920's  and  continued  through 
the  1930's,  although  unit  sales  varied  in  some  years  because  of  eco- 
nomic conditions. 

The  major  influence  of  the  refrigerator  on  buying  habits  was  to 
reduce  the  frequency  of  shopping  trips.  The  refrigerators  enabled 
the  storage  of  foods,  particularly  meat,  for  longer  periods  of  time 
than  the  old  conventional  ice  box.11  Following  World  War  II,  a 
variation  of  the  refrigeration  principle— the  deep  freeze  or  home 
freezer— enabled  storage  of  foods  for  even  longer  periods.  The  sales 
of  home  freezers,  which  totaled  8,983,800  units  through  1956,  along 

11  A.  A.  Brown,  "Competition  in  Refrigeration  Demands  the  Retelling  of  the 
Food  Protection  Story,"  Edison  Electric  Institute,  April,  1937,  p.  123. 


External  Factors  39 


TABLE  3-6 

Manufacturers'  Sales  by  Number  of  Units  of  Refrigerators  and 
Home  Freezers  for  the  Years  1926  to  1956. 


Year 

Refrigerators 

Home  Freezers 

1926* 

1927 

1928 

1929 

1930 

205,000 
375,000 
535,000 
778,000 
791,000 

1931 
1932 
1933 
1934  f 
1935 

906,000 

798,000 

1,016,000 

1,283,000 

1,568,000 

1936 
1937 
1938 
1939 
1940 

1,996,000 
2,310,000 
1,254,000 
1,900,000 
2,700,000 

1941 
1942  f 

1945 
1946 
1947$ 

3,500,000 

520,000 

263,860 

2,100,000 

3,400,000 

( None  recorded 
before  1946) 

210,300 
607,000 

1948 
1949 
1950 
1951 
1952 

4,766,000 
4,450,000 
6,020,000 
3,731,000 
3,196,000 

690,000 

485,000 

884,000 

1,032,500 

1,118,200 

1953  § 
1954 
1955 
1956 

3,287,000 
3,135,000 
3,820,000 
3,382,000 

1,049,800 
943,000 

1,045,000 
919,000 

*  Sales  from  1926  to  1934  are  found  in  Electrical  Merchandising,  Vol.  55,  no. 
1,  January,  1936,  p.  3. 

f  Sales  from  1934  to  1945  are  found  in  Electrical  Merchandising,  Vol.  76,  no. 
1,  January,  1946,  p.  37. 

$  Sales  from  1947  to  1952  are  found  in  Electrical  Merchandising,  Vol.  85,  no. 
1,  January,  1953,  p.  75. 

§  Sales  from  1953  to  1956  are  found  in  Electrical  Merchandising,  Vol.  90,  no. 
1  January,  1957,  p.  102. 

\  None  were  manufactured  during  the  years  1943  and  1944. 


40  Supermarketing 

with  the  growing  popularity  of  refrigerators  with  frozen  food  com- 1| 
partments  also  influenced  the  pattern  of  frozen  food  sales. 

In  addition  to  reducing  the  frequency  of  shopping  trips,  refrigera- 
tion brought  about  still  another  and  more  revolutionary  change  in 
the  food  pattern.  It  made  possible  the  development  of  a  myriad  of 
new  frozen  food  products  which  gained  popularity.  The  supermar- 
kets took  greater  advantage  of  this  new  food  trend  than  the  small 
food  store  by  providing  the  space  and  the  large  capital  for  the  re- 
frigerated units  required  to  store  and  display  these  new  foods.12 

New  Food  Manufacturing  and  Processing  Techniques 

Manufacturers  developed  products  that  made  it  more  convenient 
to  prepare  and  serve  foods.  For  example: 

1.  Baby  foods,  which  got  their  start  in  1925,  built  up  to  a  $251,- 
000,000  retail  volume  in  1958.13 

2.  The  preservation  of  foods  by  quick  freezing  was  pioneered  by 
Clarence  Birdseye  in  1925. 14  The  first  line  was  introduced  in  the 
food  stores  by  General  Foods  in  1930.  Frozen  foods,  which  not  only 
included  the  conventional  fruit  juices  and  vegetables  but  also  com- 
plete dinners,  attained  an  estimated  retail  volume  of  $2,331  billion 
in  1958.15  Dehydrated  food  processing  currently  looks  promising. 

3.  New,  instant-type  desserts,  ready  cake  mixes,  and  beverages 
(to  name  but  a  few)  were  developed.  These  new  products  generally 
were  more  expensive  than  the  older  types  of  products  which  they 
replaced.16  The  distribution  of  gourmet  specialties  by  General  Foods 
is  a  recent  innovation. 

4.  Packaging  changes  have  resulted  that  not  only  facilitate  self- 
service  selling  but  also  require  additional  display  space.  One  ex- 
ample is  the  growing  use  of  multiple  packaging  that  requires  room  I 

12  Edwin  T.  Gibson,  "Frozen  Foods  in  the  Super  Market,"  Super  Market  Mer- 
chandising, XV,  no.  6,  June,  1950,  p.  72. 

^What  the  Public  Spends  for  Grocery  Store  Products  (New  York:  Food 
Topics  Publishing  Co.,  1959),  p.  3. 

14  Frozen  Food  Industry  (Philadelphia:  Curtis  Publishing  Co.,  1952),  p.  4. 

15  What  the  Public  Spends  for  Grocery  Store  Products,  op.  cit. 

16  "Stocks  Have  Trebled,"  Progressive  Grocer,  XXXI,  no.  10,  October,  1952, 
p.  41. 


External  Factors  41 

for  display  in  order  to  differentiate  the  product  from  the  5,710  other 
items  in  supermarkets.17  Another  example  is  the  innovation  of  larger 
packages  for  soap  and  cleansers,  which  require  additional  space  for 
proper  merchandising. 

The  many  new  items  and  innovations  required  the  food  store  to 
carry  larger  inventories,  to  provide  more  display  space,  and  to  have 
sizable  investments  in  refrigerated  cases.  These  new  products, 
easily  sold  by  self-service  techniques,  in  the  main  benefited  the 
supermarket  as  compared  to  the  small  grocer  who  lacked  the  needed 
facilities.18 

POPULATION  GROWTH  AND  SHIFT  TO  THE  SUBURBS 

The  population  of  the  United  States  increased  during  the  years 
1930  to  1950  from  123,070,000  to  151,240,000.19  By  January,  1958,  the 
number  of  inhabitants  soared  to  171,970,000.2°  This  rise  of  23.4  per 
cent  was  associated  with  a  rising  food  store  volume.  However,  loca- 
tional  shifts  in  the  population  appeared  to  affect  more  significantly 
the  shifting  of  the  pattern  of  food  store  sales  than  did  the  increase 
in  the  number  of  inhabitants. 

Data  on  140  central  cities  in  the  United  States,  which  in  1940  had 
50,000  or  more  population,  are  given  in  Table  3-7.  From  1930  to 
1940  the  percentage  increase  of  population  in  the  central  cities  was 
6.1  per  cent,  while  the  areas  adjacent  rose  16.9  per  cent,  as  calcu- 
lated from  statistics  contained  in  Table  3-7. 

In  the  period  of  1940  to  1950  the  number  of  central  cities  in- 
creased to  168,  as  noted  from  the  figures  in  Table  3-8.  The  central 
city  population  grew  13.9  per  cent,  but  the  areas  adjacent  rose  35.5 
per  cent.  National  population  from  1940  to  1950  increased  from 
131,936,000  to   151,240,000,  or  only  14  per  cent.  The  estimated 

17  Frank  J.  Charvat,  "Growth  Trend  in  Multiple  Packaging,"  Advertising 
Agency,  Vol.  51,  no.  17,  August  15,  1958,  p.  16. 

18  "Stocks  Have  Trebled,"  Progressive  Grocer,  op.  cit. 

19  U.S.  Bureau  of  the  Census,  Number  of  Inhabitants,  U.S.  Summary  1950 
Census  of  Population,  Government  Printing  Office,  Washington,  D.C.,  1952,  pp. 
1-51. 

20  U.S.  Bureau  of  the  Census,  Current  Population  Reports,  Government  Print- 
ing Office,  Washington,  D.C.,  1958,  p.  1. 


42  Supermarketing 


TABLE  3-7* 

Shift  in  Population  in  140  Central  Cities  of  the 

United  States  with  50,000  Population  and  Over, 

for  the  Years  1930  and  1940. 

%  increase 
1930  1940  1940  over 

Population  Population  1930 

Central  cities  40,343,442  42,796,170  6.1 

Outside  central 

city  area  f 17,259,423 20,109,603 16.9 

*  U.S.  Bureau  of  the  Census,  Sixteenth  Census  of  the  U.S.,  1940  Population, 
Vol.  1,  Government  Printing  Office,  Washington,  D.C.,  1942,  p.  61. 

f  The  area  "outside  the  central  city"  is,  by  census  definition,  immediately 
adjacent  to  the  city. 

changes  in  population  to  1958  indicate  a  continuation  of  this  trend, 
with  the  inhabitants  literally  racing  to  the  suburbs  to  live. 

An  additional  factor  of  this  national  shift  to  suburban  living  was 
the  composition  of  the  population.21  The  median  family  income  in 
1950  for  the  suburban  area  was  $5,100  against  $3,600  for  the  city 
proper.  About  75  per  cent  of  the  suburban  families  owned  their 
homes,  as  compared  with  41  per  cent  for  the  city.  Approximately  27 
per  cent  of  the  residents  in  the  suburbs  were  under  14  years  of  age, 
whereas  in  the  city  itself,  this  age  group  claimed  only  21.4  per  cent. 

These  changes  in  urban  and  suburban  population  were  attributed 
in  part  to  World  War  II,  to  the  desire  for  home  ownership,  to  the 
requisite  for  larger  space  around  homes,  to  more  families,  and  to 
the  increase  in  personal  disposable  income.  The  automobile  was  a 
tool  in  this  development,  since  it  helped  to  provide  transportation. 
These  outlying  areas,  not  so  densely  populated  per  square  mile  as 
the  cities,  required  shopping  facilities.  New  secondary  shopping 
centers  mushroomed;  some  assumed  major  significance.  The  extent 
to  which  supermarkets  and  other  forms  of  retailing  took  advantage 
of  these  new  suburban  markets  is  examined  in  the  next  section. 

21  "The  Lush  New  Suburban  Market,"  Fortune,  XL VIII,  no.  5,  November, 
1953,  p.  131. 


External  Factors  43 


TABLE  3-8  * 

Shift  in  Population  in  168  Central  Cities  of  the 

United  States  with  50,000  Population 

and  Over,  for  the  Years  1940  and  1950. 

%  increase 
1940  1950  1950  over 

Population  Population  1940 

Central  city                       43,391,718                    49,412,792  13.9 

Outside  central 
city  area 25,887,957 35,087,888 35.5 

*  U.S.  Bureau  of  the  Census,  Number  of  Inhabitants,  U.S.  Summary,  1950 
Census  of  Population,  Government  Printing  Office,  Washington,  D.C.,  pp.  1-69. 

RETAIL  TREND  TOWARD  DECENTRALIZATION 

The  development  of  outlying  shopping  sections  was  an  adjunct 
to  the  suburban  movement  of  the  population.  The  supermarket  was 
part  of  this  movement.  While  it  can  be  contended  that  the  locating 
of  supermarkets  is  a  management  prerogative  and  should  be  in- 
cluded in  the  next  chapter  under  operating  practices,  the  whole 
retail  movement  to  the  suburbs  was  pronounced.  This  forced  retail 
management  generally  to  open  outlets  in  the  suburbs.22  The  need  for 
retail  outlets  was  made  greater  when  manufacturing  plants  were 
given  special  tax  advantage  to  encourage  new  factories  in  outlying 
areas.23 

In  Table  3-9  are  statistics  on  retail  sales  volume  by  size  of  city. 
Generally,  the  period  from  1939  to  1954  showed  a  trend  toward  a 
greater  percentage  of  sales  in  smaller  communities.  However,  the 
movement  by  large  retailers  to  the  suburbs  has  further  gained  mo- 
mentum 24  Companies  participating  in  shopping  centers  read  like 
a  "Who's  Who  of  Merchandising/'  Many  of  these  outlying  shop- 

22  "The  Changing  American  Market,"  Fortune,  XL VIII,  no.  2,  August,  1953, 
p.  232. 

23  V.  B.  Smith,  "Industry  Disperses  Plants,"  Engineer-News,  March  27,  1952, 
p.  241. 

24  "The  Changing  American  Market,"  op.  cit. 


44 

Supermarketing 

TABLE  3-9  * 

Retail  Trade  by  City  Size  for  the  Years  1954, 

1948,  and  1939. 

Sales  (in  billions) 

Percentage  distribution 

Size 

1954 

1948 

1939 

1954 

1948 

1939 

500,000  and  over 

$  35.8 

$  30.3 

$10.2 

21.1 

23.2 

24.3 

250,000  to  499,999 

13.4 

9.9 

3.9 

7.8 

7.6 

9.4 

100,000  to  249,999 

15.9 

12.5 

3.8 

9.4 

9.6 

8.9 

50,000  to  99,999 

14.5 

11.0 

3.5 

8.5 

8.4 

8.3 

10,000  to  49,999 

34.6 

26.3 

8.0 

20.4 

20.1 

19.1 

5,000  to  9,999 

12.8 

9.7 

3.0 

7.5 

7.4 

7.2 

2,500  to  4,999 

9.9 

7.0 

2.3 

5.8 

5.4 

5.6 

Under  2,500 

33.1 

24.0 

7.3 
$42.0 

19.5 
100.0 

18.3 
100.0 

17.2 
100.0 

Total 

$170.0 

$130.7 

*  Data  for  1939  and  1948  from  U.S.  Bureau  of  Census,  Census  of  Business, 
1948,  Retail  Trade,  Part  11,  Vol.  II,  Government  Printing  Office,  Washington, 
D.C.,  1952,  p.  14.  Data  for  1954  from  U.S.  Bureau  of  Census,  Census  of  Busi- 
ness, 1954,  Bulletin  R-2-2,  Government  Printing  Office,  Washington,  D.C.,  1957, 
pp.  2-309. 

ping  centers  located  in  unincorporated  areas  in  order  to  obtain  low- 
cost  land  and  to  avoid  annoying  local  ordinances.  This  phenomenal 
shift  is  reflected  in  the  data  contained  in  Table  3-9.  Total  retail  sales 
made  in  areas  of  under  2,500  rose  from  17.2  per  cent  of  all  retail 
sales  in  1939  to  19.5  per  cent  of  all  retail  volume  by  1954. 

Three  types  of  centers  have  developed.25  The  smallest— 5  to  10 
acres  with  a  maximum  of  ten  stores  and  referred  to  as  the  neighbor- 
hood type— has  one  dominant  store  in  the  group  acting  as  the  mag- 
net to  attract  shoppers.  This  core  store  frequently  has  been  a  large 
supermarket.  The  investment  ranges  from  several  hundred  thousand 
dollars  to  several  million  dollars.  The  second  type— the  intermediate 
community  center  of  10  to  25  acres  with  a  junior  department  store 
as  the  focal  point— needs  a  minimum  of  5,000  families  for  its  support. 
This  type  of  center  is  reflected  by  Lincoln  Village  in  the  Chicago 
suburbs,  which  required  an  investment  of  about  $3,000,000.  The 
third  type  is  a  regional  center  with  a  minimum  of  35  acres  and  serv- 

25  "Shopping  Centers,"  Barrons,  XXXVI,  no.  32,  August  6,  1956,  p.  3. 


External  Factors  45 

ing  100,000  persons.  Examples  of  the  latter  are  the  $100,000,000  ex- 
travaganza of  Lakewood  Center  in  Los  Angeles,  which  has  a  12,000- 
car  parking  lot,  or  the  new  $25,000,000  Roosevelt  Field  center  in 
New  York,  which  contains  110  stores  and  expects  to  transact  an  $80,- 
000,000  yearly  volume. 

In  1957,  35  regional  centers,  200  intermediate  community  centers, 
and  600  of  the  neighborhood  type  of  center  were  opened.26  Shop- 
ping centers  continue  to  flourish,  but  they  appear  to  be  losing  some 
of  their  momentum.  A  1958-59  directory  of  the  large  suburban  shop- 
ping centers  lists  1,914  centers  with  14,750  tenant  stores.27 

The  decentralization  movement  was  a  factor  in  supermarket  de- 
velopment.28 The  "cheapy"  supers  were  first  located  in  low-rent  dis- 
tricts adjacent  to  densely  populated  areas  of  New  Jersey  and  New 
York.  It  was  considered  that  a  population  of  75,000  to  100,000  was 
required  to  support  a  million-dollar  yearly  volume  market  and  that 
the  saturation  point  of  the  number  of  these  units  would  be  reached 
quickly.29 

With  the  shift  to  better  equipped  and  housed  supers,  stores  were 
opened  in  a  variety  of  other  sections  and  communities  throughout 
the  country.  Many  of  the  new  locations  were  selected  to  house 
larger  stores  and  to  provide  necessary  parking.  The  changing  pat- 
tern is  shown  by  the  statistics  in  Table  3-10.  In  1940,  28.4  per  cent  of 
the  supers  were  in  cities  with  a  population  of  500,000  and  over,  and 
50  per  cent  in  cities  with  an  excess  of  100,000  inhabitants.  Although 
the  number  of  supermarkets  increased  numerically  in  these  large 
cities  during  the  next  14  years,  there  was  an  over-all  trend  toward 
small-town  locations;  and  the  large  cities  lost  relatively  in  the  num- 
ber of  supers  by  almost  13  per  cent.  All  classes  of  communities  un- 
der 100,000  population  gained  relatively  in  this  14-year  period.  More 
than  38  per  cent  of  all  supermarkets  in  1954  were  in  towns  of  less 

^Business  Week,  no.  1499,  May  24,  1958,  p.  50. 

27  Directory  of  Shopping  Centers  in  the  United  States  and  Canada  1958-59 
(Chicago:  National  Research  Bureau,  Inc.,  1959). 

28  "Store  Locations,"  Chain  Store  Age,  Grocery  Executive  Edition,  January, 
1950,  p.  143. 

29  Carl  Dipman,  "Merchandising  Trends  in  the  Food  Trade  with  Special  Ref- 
erence to  Supermarkets,"  Journal  of  Marketing,  III,  no.  3,  January,  1939,  p.  272. 


46  Supermarketing 

TABLE  3-10  * 

Number  of  Supermarkets  in  the  United  States  by  Size  of  the  Community 

for  the  Years  1940,  1950,  and  1954,  and  the  Percentage  That 

Each  Community  Is  to  the  Total. 


1940 

1950 

1954 

Population 

Number 

% 

Number 

% 

Number 

% 

500,000  and  over 

2,119 

28.4 

2,854 

20.1 

3,073 

17.8 

100,000  to  499,999 

1,599 

21.4 

2,929 

20.7 

3,441 

19.9 

25,000  to  99,999 

1,647 

22.0 

3,276 

23.5 

3,938 

22.8 

10,000  to  24,999 

967 

12.9 

2,218 

15.8 

3,025 

17.5 

5,000  to  9,999 

545 

7.3 

1,289 

9.1 

1,592 

9.2 

2,500  to  4,999 

352 

4.7 

784 

5.3 

1,038 

6.0 

Under  2,500 

244 

3.3 

814 

5.5 

1,191 

6.8 

Total 

7,473 

100.0 

14,164 

100.0 

17,298 

100.0 

*  Super  Markets  in  the  United  States  (Philadelphia:  Curtis  Publishing  Co., 
1954),  p.  7. 


than  25,000  inhabitants.  These  statistics  indicate  that  supermarkets 
followed  the  trend  of  the  population  to  the  outlying  areas.  The 
supermarkets  were  here  at  an  advantage  in  that  they  could  erect 
facilities  suitable  to  the  shopping  needs.  Moreover,  in  these  outlying 
locations,  there  tended  to  be  less  competition  from  small  food  stores 
than  in  the  older  sections  where  rental  f acilities  for  small  food  stores 
were  greater. 

SHIFT  IN  CONSUMER  BUYING  HABITS,  INCLUDING 
ONE-STOP  SHOPPING  AND  SCRAMBLED 
MERCHANDISING 

Certain  consumer  buying  habits  underwent  a  considerable  change 
after  the  1920's.  These  shifts  were  associated  with  the  supermarket 
development  inasmuch  as  the  supers  adopted  practices  in  line  with 
the  change  in  shopping  wants.30  Supermarkets  were  thus  in  a  more 

30  The  changes  in  shopping  habits  occurred  concomitantly  with  the  develop- 
ment of  the  supermarket.  No  attempt  is  made  to  determine  which  preceded  the 
other.  The  entire  movement  was  part  of  a  trend  toward  "simplified  selling." 


External  Factors  47 

favorable  position  than  other  types  of  food  stores  to  benefit  from 
these  changes. 

Thirty-seven  different  studies  were  reviewed  to  determine  changes 
in  shopping  habits  that  differed  from  those  of  the  pre-supermarket 
era.31  An  example  is  the  McCall's  Magazine  "Consumer  Diary 
Study,"  the  results  of  which  are  found  in  Table  3-11.  The  findings 
of  the  various  research  projects  are  summarized  as  follows: 

1.  There  has  been  a  decided  increase  in  one-stop  shopping  pref- 
erence. Women  shoppers  first  go  to  stores  they  believe  will  give 
them  the  best  opportunity  of  making  all  their  purchases.  This  de- 
sire has  led  to  the  diversified  lines  of  merchandise  handled  by 
supers. 

2.  Visits  to  the  food  store  have  become  less  frequent.  The  aver- 
age seems  to  be  about  three  times  per  week.  There  is  a  decided  in- 
crease in  the  number  of  people  who  shop  once  a  week. 

3.  There  has  been  a  substantial  increase  in  the  use  of  the  auto- 
mobile for  shopping. 

4.  The  average  expenditure  per  customer  in  the  stores  has  in- 
creased substantially,  more  than  the  rise  in  price  level. 

5.  Shopping  seems  concentrated  on  certain  days  of  the  week, 
with  Friday  and  Saturday  the  key  days. 

6.  People  tend  to  travel  farther  to  shop  than  they  did  prior  to 
the  supermarket  development. 

7.  While  shopping  is  still  done  predominantly  by  women  alone, 
the  increase  in  number  of  men  shoppers  has  been  substantial.  The 
general  findings  indicate  men  alone,  or  accompanied  by  women, 
purchase  about  40  per  cent  of  the  food. 

8.  Impulse  buying  has  become  a  significant  factor  in  food  shop- 
ping. Display  techniques  and  ability  of  the  buyer  to  wander  through 
the  store  have  resulted  in  the  purchase  of  a  significant  number  of 
items  that  the  customer  had  not  intended  to  buy  upon  entering  the 
store. 

31 A  comprehensive  file  of  consumer-shopping  studies  is  contained  at  the 
library  of  the  Super  Market  Institute.  These  studies  were  made  by  advertising 
agencies,  private  research  firms,  universities,  and  the  research  departments  of 
corporations,  newspapers,  and  periodicals. 


48 


Supermarketing 


9.  Preference  for  self-service  is  indicated  by  answers  to  surveys 
and  also  by  the  heavy  patronage  of  self-service  food  stores. 

10.  There  is  a  desire  for  more  convenient  and  attractive  shopping. 

TABLE  3-U  * 

Findings  from  McCalFs  Magazine  Consumer  Diary 
Study  of  Food  Purchases  Made  by  1,090 
Families  for  One  Week  in  the  Year  1956. 


A.   FOOD  PURCHASES 

MADE   BY   THE 

PANEL: 

Number  of 

Total 

families 

number  of 

that  purchased 

purchases  of  each 

Dollar  value 

Products  purchased 

these  products 

product  made 

of  purchases 

Meat,  poultry,  fish 

1,051 

4,515 

$  6,066 

Produce 

1,030 

4,211 

1,951 

Dairy 

1,067 

7,278 

4,530 

Frozen  foods 

653 

1,603 

974 

Baked  goods 

1,069 

4,984 

1,723 

Grocery  items 

1,090 

23,491 

11,378 

B.   FOOD  PURCHASING   HABITS: 

1.  Approximately  86.6  per  cent  of  the  food  shoppers  always  use  an  auto- 
mobile, and  an  additional  1.8  per  cent  use  an  automobile  for  food  shopping 
only  part  of  the  time. 

2.  Approximately  90.7  per  cent  of  the  families  do  some  shopping  at  super- 
markets, and  75.8  per  cent  shop  exclusively  at  supermarkets. 

3.  Major  reasons  for  shopping  at  supermarkets  expressed  as  a  percentage 
of  total  responses: 

Large  selection 49.0% 


37.8% 
28.7% 
22.2% 
20.5% 
13.9% 


Economy  .... 
Self-service  selection 
One-stop  shopping  . 
Easy-to-find  items  . 
Freshness  .... 
4.  Two  major  dislikes  are  (a)  impersonal  relationship  due  to  large  size  of 
store,  and  ( h )  difficulty  of  finding  items  because  of  the  size  of  the  store. 

*  Home  Testing  Institute,  Inc.,  McC all's  Food  and  Grocery  Products  Diary 
Study  (New  York:  McCall  Corp.,  1956). 

11.  Advertising  helps  women  in  their  search  for  merchandise. 

They  examine  the  newspapers  prior  to  making  shopping  expeditions. 

These  changes  in  buying  habits  in  general  have  favored  the  super- 


External  Factors  49 

market  industry  as  compared  to  other  types  of  food  stores.32  Perhaps 
the  most  significant  of  these  changes  in  shopping  in  relation  to  the 
growth  of  supermarkets  has  been  the  preference  for  one-stop  shop- 
ping.33 This  in  turn  has  been  one  of  the  reasons  that  has  intensified 
competition  among  different  types  of  retailers  in  selling  the  same 
product— scrambled  merchandising.34  Supermarkets  have  always 
been  one  of  the  proponents  of  scrambled  merchandising.  Aided  by 
large  customer  traffic,  supers  have  added  many  lines  of  merchandise 
that  were  foreign  to  food  stores  in  the  1920's  and  have  turned  them 
into  substantial  sources  of  profit.35 

ADDITIONAL  EXTERNAL  FACTORS  THAT 
INFLUENCED  THE  SUPERMARKET  DEVELOPMENT 

An  examination  of  the  literature  in  this  field  has  disclosed  a  variety 
of  additional  external  factors  that  had  varying  degrees  of  influence 
on  the  supermarket  growth.  Some  of  the  most  important  of  these 
are  summarized  below. 

1.  There  was  a  trend  following  the  early  1930's  for  a  greater  per- 
centage of  married  women  to  work  outside  the  home.  Generally 
they  were  able  to  spend  this  income,  or  at  least  part  of  it,  as  they 
wished.  The  display  techniques  of  supermarkets  and  the  addition  of 
nonfood  lines  have  attempted  to  capture  this  income.36 

2.  Manufacturers  of  food  products  increased  the  brand  and  pack- 
age advertising  of  their  merchandise  in  an  effort  to  presell  the  cus- 
tomers.37 

32  The  operating  practices  of  supermarkets  that  enabled  them  to  benefit  more 
from  these  buying  habit  changes  than  other  types  of  food  stores  are  presented 
in  Chapters  4  through  7. 

33 Here's  How  We  Shop  for  Our  Big  Grocery  Order  (New  York:  Batten, 
Barton,  Durstine  &  Osborne,  1959). 

34  Richard  Alt,  "Competition  among  Types  of  Retailers  in  Selling  the  Same 
Commodity,"  Journal  of  Marketing,  XIV,  no.  3,  January,  1948,  p.  444. 

35  Milton  Alexander,  "\^here  We  Stand  in  Non-Foods  Merchandise,"  Pro- 
gressive Grocer,  XXXI,  no.'  10,  October,  1952,  p.  197. 

36  "Supermarket  Revolution  in  Retailing,"  Business  Week,  no.  1189,  June  28, 
1952,  p.  38. 

37  John  R.  Gilman,  "Why  Package  Products  Face  Super  Competition  in  Super- 
markets," Advertising  Agency,  Vol.  45,  no.  6,  June,  1952,  p.  64. 


50  Supermarketing 

3.  There  was  a  growing  trend  for  manufacturers  to  identify  then- 
products  in  the  mind  of  the  consumer  as  to  constant  quality  and 
value.  This  ready  recognition  and  acceptance  of  brand  names  aided 
the  self-service  movement,  one  of  the  keystones  of  the  super- 
market.38 

4.  Following  World  War  II  there  was  a  trend  toward  larger 
family  units  than  in  the  1930's.  With  more  members  of  the  family 
to  take  care  of,  women  found  it  difficult  to  shop  frequently.  When 
they  did  go  to  the  store,  they  bought  in  greater  quantity  and  tended 
to  patronize  supermarkets  because  of  price  appeal  and  convenience 
offered.39 

5.  The  scarcity  of  cheap  household  help  today,  compared  to  the 
availability  in  the  1930's,  influenced  women  to  seek  easier-to-prepare 
foods.  This  in  turn  necessitated  that  the  merchant  carry  a  greater 
variety  of  these  foods.  The  larger  facilities  and  resources  of  the 
supers  enabled  them  generally  to  benefit  more  than  the  small  food 
store.40 

6.  The  growing  baby  crop,  which  began  during  World  War  II 
and  which  has  continued  unabated  since  then,  has  placed  an  ever- 
larger  percentage  of  the  population  under  21  years  of  age.  These 
growing  bodies  have  made  it  necessary  for  families,  in  order  to  sus- 
tain this  age  group,  to  place  an  increasing  portion  of  their  expendi- 
tures into  food  and  related  items  sold  in  supers. 

MARKET  OF  THE  1960s 

Continuation  of  a  favorable  market  for  the  "sizzling  sixties"  is 
portrayed  by  the  recent  forecast  of  the  magazine  Life.41  The  55  mil- 
lion families  of  1960  are  expected  to  increase  to  66  million  by  1970. 
One  out  of  every  four  18-year-old  girls  would  be  married  by  the 

38  E.  B.  Weiss,  "Food  Supers  Will  Find  Going  Tougher,"  Printers  Ink,  Vol. 
239,  no.  13,  June  27,  1952,  p.  71. 

39  Charlotte  Montgomery,  "The  Woman  and  the  Modern  Market,"  Progressive 
Grocer,  XXXI,  no.  10,  October,  1952,  p.  170. 

«>Ibid. 

41  The  magazine  Life  employed  many  market  research  experts  to  plan  a  re- 
search project  forecasting  the  market  of  the  1960's.  The  findings  were  published 
in  a  booklet  entitled  The  Market  of  the  Sixties  (New  York:  Time,  Inc.,  1960). 


External  Factors  51 

end  of  1960,  the  survey  predicted.  Prior  to  World  War  II,  53  per 
cent  of  the  women  between  20  and  24  were  married;  in  1960,  65  per 
cent  of  the  women  in  this  age  group  would  be  married,  and  the  con- 
tinued outlook  is  for  a  leveling  off  at  that  percentage.  Furthermore, 
women  of  today  are  bearing  larger  families,  with  the  1970  popula- 
tion estimated  at  210  million  persons.  A  new  baby  boom  is  antici- 
pated to  start  around  1965  when  the  girl  babies  born  in  the  early 
postwar  years  reach  marriageable  age.  The  1970  birth  rate  is  ex- 
pected to  be  over  5  million  compared  with  slightly  more  than  4  mil- 
lion currently  in  1960. 

Families  with  teen-agers,  which  comprise  the  major  market  of  the 
1960's,  will  continue  to  spend  out  of  proportion  to  their  number, 
especially  for  food  and  soft  drinks.  The  number  of  inhabitants  over 
65  will  increase  by  19  million;  and  for  the  first  time,  this  class  will 
have  sizable  incomes  to  spend.  Wives  between  the  ages  of  35  and 
64  are  expected  to  have  continued  increase  in  income  as  a  result  of 
their  employment  outside  their  homes.  From  1940  to  1960,  the  num- 
ber of  working  women  between  the  ages  of  35  and  64  more  than 
doubled. 

During  the  1950's,  the  population  of  suburban  areas  of  metro- 
politan markets  grew  seven  times  as  fast  as  the  rest  of  the  United 
States.  Suburbs  are  expected  to  continue  to  expand.  Overlapping 
areas  from  one  metropolitan  center  to  another  will  create  vast  new 
interrelated  markets.  Continued  decentralized  industry  and  service 
organizations  will  strengthen  the  tendency  toward  convenience 
shopping,  with  greater  dependence  on  cars.  The  consumer  will  be 
I  of  a  higher  intellectual  level. 

In  1947,  family  units  in  the  $4,000  to  $7,500  income  bracket  rep- 
I  resented  about  23  per  cent  of  all  units  but  had  43  per  cent  of  all 
I  disposable  income.  This  group  destroyed  the  traditional  gap  be- 
I  tween  a  mass  market  for  necessities  and  the  small  class  market  for 
J  luxuries.  By  1960,  22  million  family  units  comprised  this  middle 
I  income  group,  a  gain  of  30  per  cent  over  1947.  The  families  earning 
more  than  $7,500  yearly  have  doubled  since  1947  to  over  12  million. 
The  number  of  family  units  under  $4,000  annual  income  has  de- 


52  Supermarketing 

clined  both  relatively  and  absolutely  since  World  War  II  and  com- 
prises today  only  two-fifths  of  the  families,  whereas  in  1947  they 
represented  about  70  per  cent  of  the  family  units.  By  1970,  45  per 
cent  of  all  families  will  have  annual  incomes  over  $7,500;  approxi- 
mately 39  per  cent  will  be  middle  income  units  from  $4,000  to  $7,500 
income,  and  only  16  per  cent  will  have  incomes  under  $4,000.  This 
substantial  group  of  high  income  families  will  have  broad,  discre- 
tionary purchasing  power,  from  caviar  and  champagne  to  world 
travel. 

The  market  of  special  interest  to  the  supermarket  industry,  that 
for  food,  drink,  and  tobacco,  is  currently  estimated  at  $91  billion. 
This  is  expected  to  rise  to  $117  billion  in  1970,  a  gain  of  29  per  cent. 
Household  and  recreation  goods,  which  totaled  $35  billion  in  1960, 
are  expected  to  rise  to  $53  billion  by  1970,  a  gain  of  51  per  cent. 
Another  item  of  possible  interest  to  the  supermarket  industry  is 
clothing.  This  totaled  $35  billion  in  1960  and  will  increase  18  per 
cent  by  1970  to  $43  billion.  The  supermarket  industry,  faced  with 
these  optimistic  forecasts,  can  plan  accordingly. 

SUMMARY 

The  economic  setting  in  which  the  supermarket  developed  was  pictured 
statistically  in  this  chapter.  These  data,  including  shifts  in  upper  income 
shares,  the  rise  in  personal  disposable  income,  and  increased  expenditures 
in  food  stores,  were  presented  to  support  the  qualitative  discussions.  The 
technological  and  psychological  environment  in  which  the  supermarket 
grew  was  depicted.  The  acceptance  of  the  automobile  as  a  shopping  aid 
and  the  shift  in  consumer  buying  habits  were  but  two  aspects  covered. 
No  numerical  claim  was  made  as  to  the  extent  of  the  association  between 
the  supermarket  development  and  each  of  these  external  factors,  indi- 
vidually or  as  a  group.  The  contention  presented  has  been  that  the  growth 
of  the  supermarket  industry  since  the  "cheapy"  development  occurred 
concomitantly  with  various  external  factors  which  furnished  a  favorable 
atmosphere.  Simply,  the  economic,  technological,  and  psychological  set- 
ting for  the  development  of  the  supermarket  was  extremely  favorable. 
And  the  period  of  the  "sizzling  sixties"  promises  more  of  the  same. 


SELLING  OPERATIONS 


INTRODUCTION 

The  preceding  chapter  covered  the  favorable  economic,  techno- 
logical, and  psychological  setting  in  which  the  supermarket  industry 
grew.  Statistics  in  Table  4-1  indicate  that  the  total  retail  sales  rose 
from  $48.3  billion  in  1929  to  $170  billion  in  1954.  Almost  15  per 
cent  of  this  $121.7  billion  increase  was  accounted  for  by  the  super- 
market. By  1954  supermarket  sales  of  $18.2  billion  represented  al- 
most 11  per  cent  of  all  retail  store  sales  of  $170  billion.  The  super- 
market volume  grew  far  more  than  that  of  the  other  food  store 
members.  Yet,  all  were  in  the  same  economic  setting  during  this 
period.  Therefore  the  supermarkets  must  have  adopted  or  developed 
operating  practices  that  induced  consumers  to  come  to  them  in  pref- 
erence to  competitors. 

The  purpose  of  this  and  the  subsequent  three  chapters  is  to  ex- 
amine what  the  supermarket  industry  did  to  promote  such  progress. 
What  practices  within  the  control  of  the  operators  themselves  were 
pursued?  Whereas  diversity  among  the  members  is  great,  certain 
general  or  common  characteristics  of  operation  set  the  supermarket 
apart  from  other  types  of  retailers. 

These  characteristics  are  discerned  through  study  of  operating 
and  financial  statistics  of  individual  concerns  as  well  as  industry  sur- 
veys. The  operating  data  are  examined  in  this  and  the  subsequent 
two  chapters  in  the  framework  of  the  main  sections  of  an  operating 
statement;  i.e.,  sales,  cost  of  sale  and  gross  margin,  cost  or  ex- 
pense, and  profit  divisions.  Selling  practices  are  reviewed  first;  cost 
of  sales  and  margins  will  be  examined  in  Chapter  5;  expense  and 
profit  analysis  will  be  contained  in  Chapter  6.  The  financial  prin- 

53 


54  Supermarketing 


TABLE  4-1  * 

Sales  of  Certain  Classes  of  Retail  Stores 

and  Total  Retail  Sales 

in  the  United  States  for  the  Years 

1929,  1939,  1948,  and  1954  (in  billions  of  dollars). 


Type  of  outlet 

1929 

1939 

1948 

1954 

All  retail  store  sales 

$48.3 

$42.0 

$130.5 

$170.0 

Nonsuper  grocery  stores 

7.3 

6.2 

16.9 

16.2 

Supermarkets  f 

— 

1.5 

7.8 

18.2 

Specialty  food  stores 

3.4  § 

2.4$ 

6.2  \ 

5.4 

All  retail  sales  except  food  store 

group  jf 

37.6 

31.9 

99.6 

130.2 

*  Data  for  1929,  1939,  and  1948  are  found  in  U.S.  Bureau  of  the  Census, 
Retail  Trade— General  Statistics,  Part  1,  Vol.  1,  Government  Printing  Office, 
Washington,  D.C.,  1952,  p.  1.04.  Data  for  1954  are  found  in  U.S.  Bureau  of 
the  Census,  1954  Census  of  Business,  Bulletin  R-2-2,  Government  Printing  Of- 
fice, Washington,  D.C.,  1957,  p.  2-2. 

f  These  statistics  are  found  in  Table  1-2. 

|  U.S.  Bureau  of  the  Census,  Statistical  Supplement,  1951  Survey  of  Current 
Business,  Government  Printing  Office,  Washington,  D.C.,  1952,  p.  25. 

§U.S.  Bureau  of  the  Census,  Food  Retailing — Retail  Distribution,  M-93, 
Government  Printing  Office,  Washington,  D.C.,  1934,  p.  9. 

tf  Calculated  by  subtracting  total  food  store  sales  from  total  retail  sales  for 
the  respective  years. 

ciples  of  supermarketing  will  be  studied  in  Chapter  7  in  the  frame- 
work of  the  major  asset  and  liability  classifications  of  a  balance  I 
sheet. 

At  the  outset,  to  exemplify  approximate  supermarket  operations, 
the  published  results  of  two  different  operations  are  presented  in 
Tables  4-2  and  4-3.  The  findings  of  the  Harvard  Business  School 
Study  of  Food  Chains,  expressed  as  a  percentage  of  sales,  are  con- 
tained in  Table  4-2.  The  operating  results  of  Wilt's,  an  independent  J 
supermarket  located  in  Elkhart,  Indiana,  are  presented  in  Table  4- 
3.  These  statements  are  submitted  to  exemplify  approximate  super- 
market operations  for  both  chains  and  independents.  They  are 
not  presented  to  show  chain  versus  independent  operation;  nor  are  j 
the  data  to  be  considered  as  typical  for  the  entire  industry.  The 


Selling  Operations  ^5 

operating  statements  indicate  merely  approximate  margin,  expense, 
and  profit  relationships  for  a  supermarket.  Operating  policies 
adopted  by  management  can  result  in  variations  from  these  statis- 
tics. 

TABLE  4-2  * 

Operating  Statistics  of  Selected  Food  Chains  Expressed 
as  a  Percentage  of  Sales  for  the  Years  1955  to  1958. 


1958  1957  1956  1955 


Sales                                 100.00         100.00         100.00         100.00 

Cost  of  sales     ."     .'     '. _7O50          ^63           *X61          _8L89 

Gross  profit "2050          20.37           19.39           18.11 

Expenses 

Payroll 10-07 

Real  estate 1-77 

Equipment  costs 1-38 

Utilities  ' 0.67 

Supplies 1-14 

Services  purchased 0.25 

Advertising   (includes  stamps)      .  1.88 

Traveling 0.10 

Insurance   (except  real  estate)     .  0.14 
Taxes    (except  real  estate  or  in- 
come)      0.53 

Miscellaneous 0.61 

Interest  paid 0.24 

Total  expense 18.78 

Net  operating  profit 1-72 

Other  income    (primarily  cash  dis- 
counts earned  and  interest)     .     .  1.17             1.21             1.22             1.17 
Less  income  tax 1.48             1.50             1.48             1.28 


10.01 

9.74 

9.68 

1.64 

1.54 

1.45 

1.42 

1.39 

1.36 

0.62 

0.61 

0.60 

1.18 

1.11 

1.08 

0.26 

0.26 

0.27 

1.87 

1.44 

0.82 

0.09 

0.08 

0.08 

0.13 

0.15 

0.16 

0.54 

0.49 

0.48 

0.61 

0.63 

0.56 

0.25 

0.27 

0.24 

18.62 

17.71 

16.78 

1.75 

1.68 

1.33 

Net  profit 1.41  1.46  1-42  1.22 


*  Wilbur  B.  England,  Operating  Results  of  Food  Chains  in  1958  (Cambridge: 
Harvard  Business  School,  Bulletin  No.  156,  1959),  p.  2. 

VOLUME-A  SUPERMARKET  NECESSITY 

The  stress  on  volume  in  a  supermarket  is  inherent  in  the  basic  na- 
ture of  operation  of  this  type  of  retail  institution.  The  early  super, 


56  Supermarketing 


TABLE  4-3  * 

Operating  Statistics  of  Wilt's  Supermarket,  Elkhart, 

Indiana,  Expressed  as  a  Percentage  of  Sales 

for  the  Year  1956. 

Sales 100.0 

Cost  of  sales 80.7 

Gross  profit 19.3 

Expenses 

Premiums 1.1 

Advertising 0.6 

Regular  payroll 9.2 

Executive  payroll 0.5 

Supplies 1.0 

Utilities 0.3 

Insurance 0.4 

Rent 0.3 

Taxes       . 0.9 

Depreciation 0.7 

Interest 0.2 

Other  expense 1.5 

Total  expense 16.7 

Net  operating  profit 2.6 

Cash  discounts 0.3 

Net  profit  before  income  tax 2.9 


*  "Change  or  Die,  Says  Wilt's,"  Super  Market  Merchandising,  XXIII,  no.  8, 
August,  1958,  p.  47. 

appealing  on  a  price  basis,  needed  volume  to  compensate  for  a 
narrow  gross  margin  and  net  profit.  The  market  of  today,  operating 
on  a  larger  but  still  relatively  small  gross  margin  compared  with 
other  types  of  retailers,  also  needs  volume  operation  to  compensate 
for  tight  gross  margins.  In  addition,  the  modern  market  has  added 
materially  to  its  expense  of  doing  business  and  its  investment.  Com- 
petitive conditions  prevent  most  markets  from  operating  continu- 
ously at  a  level  which  will  yield  the  greatest  dollar  net  return.  Un- 
used capacity  appears  to  exist  in  most  markets.  Therefore  stress 
must  be  placed  on  added  possibilities  for  volume  to  bring  the  market 


Selling  Operations  57 

more  in  line  with  its  capacity  and  optimum  profit  potential.  These 
relationships  are  examined  in  detail  in  Chapter  7. 

SALES  PRACTICES  OF  SUPERMARKETS 

The  basic  technique  of  supermarket  operation  has  been  to  trans- 
act a  large  dollar  volume.1  This  has  been  accomplished  by  devices 
such  as: 

1.  Price  appeal 

2.  Display  techniques 

3.  Self-service 

4.  Attractive  and  convenient  shopping  facilities 

5.  Advertising  and  promotion 

6.  Large  inventories  but  well  regulated  with  regard  to  turnover 

7.  Addition  of  diversified  fines  of  merchandise  including  nonfood 
items 

Each  of  these  devices  for  building  volume  is  examined  in  detail 
in  the  remainder  of  this  chapter. 

Price  Appeal 

With  regard  to  price,  from  the  inception  of  the  "cheapy"  super- 
market to  the  modern  supers  of  today,  the  general  practice  has  been 
to  sell  for  less.2  Through  its  low-cost  methods,  the  supermarket,  more 
than  any  other  food  store,  has  passed  on  to  the  customer  over  the 
past  25  years  greater  values  plus  additional  services.3  The  "cheapy" 
super  rode  to  fame  by  its  "price  wrecking"  policies  and  large  vol- 
ume. Supers  still  stress  low  prices  as  a  means  of  attracting  customers 
and  building  volume.  Witness  the  full-page  newspaper  ads  of  spe- 
cial values  offered  by  supers.  Price  studies  dating  back  to  the 
"cheapy"  supers  indicate  the  constant  endeavor  of  modern  supers 
to  sell  for  less,  and  this  is  further  substantiated  by  the  small  gross 

*M.  M.  Zimmerman,  "Ten  Years  of  Supermarket  Growth,"  Super  Market 
Merchandising,  XI,  no.  12,  December,  1946,  p.  45. 

2  Victor  Lebow,  "What  Department  Store  Managers  Should  Know  About 
Supermarkets,"  Journal  of  Retailing,  XXIX,  no.  1,  Spring,  1953,  p.  17. 

3  William  Applebaum,  "Is  Supermarket  Efficiency  Slipping?"  Chain  Store 
Age,  Grocery  Store  Executive  Edition,  February,  1952,  p.  169. 


58  Supermarketing 

margin  of  the  supermarkets  in  comparison  with  that  of  other  forms 
of  retailing.4  Even  though  supers  generally  have  modernized  their 
stores  and  made  them  attractive,  studies  have  revealed  customers 
still  have  the  "opinion"  that  supermarkets  quote  low  prices.5  Akin  to 
price  appeal  is  the  concept  of  quality.  In  the  main,  whether  it  be 
nationally  advertised,  branded  merchandise,  or  chain  store  brands, 
supermarkets  have  been  associated  with  the  concept  of  giving  satis- 
factory quality  in  relation  to  price.6  One  of  the  keystones  of  super- 
market operation,  self-service,  is  in  part  predicated  on  the  customers 
recognition  of  price  bargains  on  known  lines. 

Pricing  Policies 

The  pricing  policies  of  individual  supermarkets  can  vary  widely 
as  a  result  of  local  factors.  In  the  main,  however,  supers  basically 
follow  a  policy  of  normal  markup  pricing,  tempered  by  competitive 
conditions  and  price  leadership.  As  a  simple  example  consider  that 
a  can  of  tomato  soup  costs  a  super  10  cents  and  the  normal  markup 
is  9.  2  per  cent,  based  on  selling  price;  then 

Selling  price  - cost  X  100% jgg  X  100% 

s  p        ~  100%  -  markup  %  at  retail  ~  (100%  -  9.2%  ) 

=  11  cents 
or,  the  soup  would  sell  at  11  cents  per  can. 

Most  comparable  concerns  in  that  immediate  trading  area,  un- 
less a  particular  store  is  differentiated  by  offering  different  services, 
will  price  the  soup  competitively.  However,  if  a  store  faces  little 
competition,  markup  on  the  tomato  soup  could  range  as  high  as  23 
per  cent,  with  the  soup  selling  at  11.5  cents  per  can,  or  2  cans  for 
23  cents.  Chain  stores  in  a  given  city,  except  for  advertised  specials 

4  Gross  margins  are  discussed  in  detail  in  Chapter  5. 

5  In  a  study  conducted  by  the  magazine  Super  Market  Merchandising  in  1948, 
the  number  two  reason  advanced  for  trading  in  supermarkets  was  "Low  Price." 
The  findings  of  the  1958  Survey  of  Super  Market  Shoppers,  Their  Buying  Habits 
and  Attitudes,  published  by  Burgoyne  Grocery  and  Drug  Index,  Inc.,  and  the 
results  of  a  study  by  Newel  Comish,  "What  Influences  Customer  Choice  of  Food 
Store?"  Journal  of  Retailing,  Summer,  1958,  indicate  price  is  still  a  significant 
factor  in  the  patronage  of  supers. 

6  Lebow,  op.  cit. 


Selling  Operations  59 

which  are  announced  throughout  the  area,  have  marked  similar 
merchandise  at  different  prices  at  different  locations. 

A  smaller  independent  supermarket,  not  associated  with  a  whole- 
sale or  retail-sponsored  voluntary  chain,  may  even  be  forced  to  op- 
erate on  a  smaller  markup  in  a  highly  competitive  area  or  differen- 
tiate the  store  because  of  its  lack  of  buying  power.  To  attract 
customers  to  the  market  some  stores  have  differentiated  by  offering 
:    unusually  high  quality  meat  or  by  remaining  open  longer  hours. 

A  manufacturer  of  soup,  desiring  more  display  space  and  a  result- 
ing greater  share  of  the  market,  may  offer  comparable  buyers  a  deal 
involving  cooperative  advertising  or  price  concessions.  The  tomato 
soup  possibly  can  be  advertised  and  sold  at  10  cents  a  can.  Deals 
such  as  this  on  a  wide  variety  of  merchandise  occur  daily  and  con- 
stantly upset  the  market  equilibrium.  Witness  the  week-end,  adver- 
tised specials  offered  in  the  Thursday  night  ads  in  which  supers 
still  use  the  price  appeal  as  an  attraction  to  customers. 

The  particular  store  or  stores  accepting  the  special  soup  deal  in 
a  certain  trading  area  will  have  a  temporary  price  advantage.  Stores 
not  participating  in  the  arrangement  may  either  cut  the  price  of 
tomato  soup  to  10  cents  or  push  some  other  price  special  in  their 
weekly  promotions,  continuing  to  sell  tomato  soup  at  11  cents  per 
can  to  the  shoppers  attracted  by  other  bargains  or  patron-buying 
motives.  At  the  end  of  the  special  promotion  (several  days  to  a 
week)  the  price  of  tomato  soup  will  revert  back  to  the  original 
equilibrium  price  of  11  cents  per  can.  No  one  company  can  continue 
to  enjoy  indefinitely  the  advantages  of  a  special  promotion  or  pur- 
chase because  the  normal  markups  established  for  the  various  classes 
of  commodities  in  the  industry  are  a  function  of  cost  of  selling  and 
profit  on  the  one  hand  and  giving  the  consumer  what  he  or  she  de- 
sires on  the  other.  Supers  are  forced  by  their  customers  to  handle 
some  products  that  yield  low  profits  per  linear  foot  of  display  space. 
The  establishment  of  normal  markups  or  margins  is  discussed  in 
Chapter  5. 

Produce  marketing  is  complicated  further  by  varying  degrees  of 
product  deterioration,  fluctuations  in  supply,  and  great  number  of 


60  Supermarketing 

products  handled.  Managers  apply  suggested  markups  on  the  indi- 
vidual products  to  make  an  over-all  initial  markup  for  the  depart- 
ment of  30  to  35  per  cent  and  a  maintained  markup  of  about  25  per 
cent  after  allowances  for  markdowns.  Spoilage  losses  average  from 
1  to  3  per  cent  of  sales. 

Meat  pricing  is  complicated  by  the  wide  fluctuations  that  occur 
in  wholesale  prices  for  meat.  Furthermore,  production  costs  are  in- 
curred in  the  super  to  prepare  the  meat  in  proper  cuts  and  packages 
for  the  consumer.  While  an  over-all  yearly  markup  percentage  gen- 
erally is  set  as  a  standard,  a  super  must  operate  daily  in  the  approxi- 
mate spread  between  selling  prices  set  by  competition  plus  what 
consumers  will  pay  and  the  cost  of  the  meat  set  by  factors  over 
which  the  super  has  no  control.  The  supermarket  must  know  the 
fixed  and  variable  costs  of  handling  all  kinds  of  meat,  as  well  as 
which  types  of  meat  cuts  pay  off.  Skill  in  pricing  joint  products  (for 
example,  short  ribs  and  roasts  from  the  same  rib)  is  essential  to 
maintain  the  general  gross  margin  and  still  attract  customers  on  a 
price  basis. 

Display  Techniques 

A  second  means  of  developing  large  volume  is  to  display  mass 
stocks  of  inventory.7  At  an  early  date  in  its  history  the  super  found 
that  mass  displays  of  merchandise  psychologically  tended  to  make 
people  buy.  Mock-ups,  mirrors,  and  lighting  have  been  used  to  give 
the  illusion  of  bigness.  Modern  display  fixtures,  refrigerators,  and 
freezers  have  been  developed.  Manufacturers  constantly  have 
studied  package  design  to  make  the  product  more  appealing.  Studies 
have  been  made  on  the  value  of  display  space  to  increase  sales.8 
Multiple  packaging  has  been  developed  to  create  "billboard  illu- 
sions" in  stores,  as  well  as  make  display  space  more  usable  directly 
on  floors  of  supermarkets.  The  placing  of  related  merchandise,  such 
as  wash  cloths  adjacent  to  toilet  soap,  has  boosted  sales.  Other  re- 

7  William  S.  Ireland,  "Mass  Sells  More,"  Chain  Store  Age,  Grocery  Executive 
Edition,  August,  1950,  p.  68. 

8  "Merchandise  Location,"  Chain  Store  Age,  Grocery  Executive  Edition,  De- 
cember, 1958,  p.  52. 


Selling  Operations  61 

lated  items  include  cellophane  wrapped  footballs  with  vitamin  pills 
and  table  cloths  with  baby  food.9  Studies  on  impulse  buying  have 
indicated  that  approximately  25  per  cent  of  the  purchase  in  supers 
are  unplanned.  Other  surveys  have  shown  that  77  per  cent  of 
women  who  shop  with  children  purchase  items  at  the  suggestion  of 
children  who  see  the  item  on  display.  Shoppers,  surrounded  by  an 
assortment  of  related  merchandise  such  as  health  and  beauty  aids 
in  a  supermarket,  respond  to  the  display  of  the  merchandise  and  do 
not  take  into  account  the  type  of  store  in  which  they  are  shopping.10 
The  supermarket  has  been  an  unusually  lucrative  source  of  un- 
planned purchases.  Increased  volume  is  thus  obtained. 

Self-Service 

Akin  to  mass  displays  is  the  policy  of  self-service.  Supermarket 
operators  generally  are  of  the  opinion  that  letting  people  roam  with 
push  carts  has  paid  off  in  increased  sales.11  Shoppers  can  feel,  pinch, 
smell,  and  handle  the  merchandise;  they  can  compare  brands  and 
read  labels.  To  feel  is  reassuring.  No  clerk  anxiously  stands  by  to 
finish  the  sale  or  hurry  the  customer.  Shoppers  can  budget  as  they 
go  along.  The  McCall's  study  of  1,090  families  disclosed  28.7  per 
cent  of  the  respondents  preferred  to  shop  in  supermarkets  because 
they  could  make  their  own  selection.12 

While  the  supers  originally  had  only  self-service  in  groceries,  they 
have  adapted  this  technique  to  meat,  dairy,  produce,  and  bakery 
departments,  with  outstanding  results.  The  facts  are  that  when  a 
supermarket  operator  puts  in  a  self-service  meat  department,  his 
sales  usually  increase  because  customers  13 

1.  Hate  to  wait. 

2.  Want  to  search  among  a  broad  variety  of  kinds  of  meat. 

9  "New  Angles  on  Related-Item  Display,"  Super  Market  Merchandising, 
XXII,  no.  4,  May,  1957,  p.  99. 

10  John  R.  Gilman,  "Why  Package  Products  Face  Super  Competition  in  Su- 
permarkets," Advertising  Agency,  45,  no.  6,  June,  1952,  p.  64. 

11  Ibid. 

12  Home  Testing  Institute,  Inc.,  McCall's  Food  and  Grocery  Products  Pur- 
chase Diary  Study  (New  York:  McCall  Corp.,  1956). 

13  Don  Parsons,  "The  Supermarket  Formula,"  Food  Business,  Vol.  6,  no.  5, 
May,  1958,  p.  17. 


62  Supermarketing 

3.  Like  to  make  their  own  choice. 

4.  Like  to  see  what  they  are  getting. 

5.  Like  to  take  their  own  time  to  select  purchases. 

The  self-service  technique  originated  in  supers  was  adopted  by 
other  forms  of  retailing  on  a  growing  scale  since  about  1950.  Wal- 
green, Woolworth,  and  Kresge  are  examples  in  the  drug  and  variety 
store  field.  Self-service,  called  "quick  service,"  had  swept  the  variety 
industry  to  the  point  in  1958  where  42  per  cent  of  total  variety  stores 
had  adopted  quick  service.14  Department  stores  have  re-examined 
the  problem  of  determining  the  amount  of  assistance  to  be  given  to 
a  customer  and  have  developed  new  store  layouts  and  display  tech- 
niques with  the  aim  of  not  only  increasing  sales  but  of  also  reduc- 
ing selling  costs.15  This  simplified  selling,  as  it  is  referred  to  in  de- 
partment store  terminology,  is  exemplified  by  the  Fedway  Stores 
division  of  Federated  Department  Stores,  Incorporated. 

Attractive  and  Convenient  Shopping  Facilities 

Another  device  to  increase  volume  has  been  to  make  the  store 
attractive,  convenient,  and  pleasant  for  shopping.10  The  "cheapy" 
super  maintained  an  air  of  cheapness  which  contributed  to  the  feel- 
ing of  obtaining  bargains.  Since  the  advent  of  the  supers,  the  gen- 
eral policy  has  been  to  make  the  stores  more  appealing  through 
more  attractive  interiors,  better  lighting,  music,  air  conditioning, 
rest  rooms,  and  parking  lots.  This  trend  of  "trading  up"  the  stores 
has  been  questioned  as  an  unnecessary  expenditure,  since  it  has 
tended  to  increase  expenses  and  raise  gross  margins.17  These  expend- 
itures possibly  could  result  in  the  super  losing  its  basic  competitive 
advantage  of  price  appeal.  On  the  other  hand,  it  has  been  con- 
tended that  these  expenses  for  comfortable  shopping  are  a  rela- 

14  "Self-service  in  Variety,  1958,"  Variety  Store  Merchandiser,  Vol.  54,  no.  4, 
May,  1958,  p.  67. 

15  C.  W.  Barker,  I.  D.  Anderson,  and  J.  D.  Butterworth,  Principles  of  Retail- 
ing (New  York:  McGraw-Hill  Book  Co.,  Inc.,  1956),  p.  136. 

16  "Appearance  Counts  at  Penn  Fruit,"  Super  Market  Merchandising,  XIII, 
no.  9,  October,  1949,  p.  74. 

17  "Schwegmann  Brothers,  Inc.,"  Business  Week,  no.  1136,  June  9,  1951,  p. 
120. 


Selling  Operations  63 

tively  small  percentage  of  sales;  the  resultant  increase  in  volume 
has  improved  the  earnings  effectively.18 

An  example  of  a  recently  opened  modern  super  with  decor  is 
Eavey's  Super  Market  in  Fort  Wayne,  Indiana.  It  has  50,250  sq  ft 
of  selling  space,  a  "kiddie  korral,"  post  office,  flower  shop,  liquor 
department,  utility  payment  booth,  and  a  carillon  for  time  and 
weather.19  Despite  the  cost  of  these  attractions,  advertised  prices 
are  in  line  with  chain  competition  and  the  concern  appears  to  be 
successful. 

The  term  "convenience  of  the  supermarket  to  the  customer"  is 
concerned  with  the  ease  by  which  the  consumer  gets  to  the  super- 
market. This  varies  by  particular  kind  of  store  location— central  busi- 
ness district,  neighborhood  location,  planned  outlying  shopping 
center,  or  highway  market.  Management  has  come  to  realize  that 
nearness  in  itself  is  not  a  basic  prerequisite  per  se,  inasmuch  as  from 
80  to  90  per  cent  of  the  customers  use  a  car  for  grocery  shopping.20 
General  factors  to  be  considered  in  selecting  a  supermarket  site  to 
make  the  location  convenient  include: 

1.  Street  walking  traffic 

2.  Street  driving  traffic 

3.  Congestion  of  streets  to  get  to  the  market 

4.  Intersection  of  other  streets 

5.  Availability  of  parking 

6.  Ease  of  access  or  egress  of  the  parking  lot 

7.  Public  transportation 

8.  Zoning  in  the  neighborhood 

Furthermore,  management  must  examine  other  location  factors  in 
the  selection  of  a  market  site,  including: 

1.  Land  size 

2.  Suitability  of  store  rental  property 

3.  Number  of  competing  stores 

18  Applebaum,  op.  cit. 

19  "Eavey's  Young  Giant,"  Super  Market  Merchandising,  XXII,  no.  1,  Janu- 
ary, 1957,  p.  85. 

20  Home  Testing  Institute,  Inc.,  McCaU's  Food  and  Grocery  Products  Pur- 
chase Diary  Study,  op.  cit. 


64  Supermarketing 

4.  Standards  of  competition 

5.  Population  trends 

6.  Income  trends 

7.  Diversity  of  income  sources 

8.  Type  of  customers 

9.  Population  density 

10.  Taxes 

11.  Neighborhood  changes 

12.  Size  of  trading  area 

The  McCalTs  Food  Study  disclosed  that  the  average  family 
spends  $25.27  per  week  or  $1,314.04  per  year  on  grocery  store  prod- 
ucts. If  $110  of  yearly  sales  per  square  foot  of  space  is  used  as  a 
standard,  a  market  of  10,000  sq  ft  of  total  covered  space  would  need 
837  families  in  order  to  transact  a  yearly  volume  of  $1,100,000.  This 
average  figure  can  vary  in  specific  instances,  but  it  is  presented  to 
illustrate  the  importance  of  having  sufficient  potential  in  the  area 
from  which  patronage  is  drawn. 

Rules  of  thumb  are  difficult  to  establish  in  locating  a  super- 
market. In  a  built-up  neighborhood  of  one-  and  two-family  units, 
a  supermarket  should  control  at  least  20  per  cent  of  all  food  busi- 
ness in  its  primary  trading  area  of  a  1-mile  radius  of  the  store,  at 
least  10  per  cent  within  the  1-  and  2-mile  radius,  and  an  additional 
1  to  2  per  cent  within  the  2-  to  5-mile  radius  of  the  store.  Mr.  Ray 
Harb,  general  sales  manager  for  Red  and  White,  Incorporated,  re- 
ported that  a  metropolitan  location  can  pull  customers  who  buy  all 
requirements  from  a  distance  that  takes  a  maximum  of  20  minutes 
to  drive.21  In  rural  areas  the  allowance  for  driving  should  be  30  to  40 
minutes.  Other  results  of  a  study  made  by  Food  Topics  on  the  maxi- 
mum trading  area  of  a  supermarket  are  shown  in  Table  4-4.  In  a 
city  with  inhabitants  of  500,000  or  more,  a  super  can  draw  from  a 
radius  of  7.1  miles  from  the  store.  In  a  small  town  of  less  than  10,000 
persons,  the  trading-area  radius  ranges  up  to  22.4  miles.  Again  it  is 
cautioned  that  locational  problems  of  each  store  are  unique  and  sub- 
ject to  individual  variation. 

21  "Store  Locations,"  Food  Topics,  January  23,  1956,  p.  1. 


Selling  Operations  65 

Trends  in  supermarket  location  indicate  that  management  has 
followed  the  movement  of  the  population  to  outlying  residential  or 
suburban  areas  in  an  endeavor  to  make  the  facility  convenient  for 
shopping.  In  fact,  even  highway  locations  have  been  pioneered  in 
recent  years  to  satisfy  this  demand. 

TABLE  4-4  * 

Maximum  Trading  Area  Radius  for  a  $500,000 

Yearly  Volume  (and  over)  Supermarket  by 

Size  of  Community. 


Trading  area 

City  size 

radius  (miles) 

500,000  and  over 

7.1 

100,000-499,000 

8.8 

25,000-99,000 

10.4 

10,000-24,000 

12.1 

Under  10,000 

22.4 

*  "Store  Locations,"  Food  Topics,  January  23,  1956,  p.  1. 

Advertising  and  Promotion 

Promotion  and  advertising  have  been  attempted  to  increase  sales. 
Attractions  for  inducing  people  to  shop  at  supers  have  ranged  from 
automobile  and  money  raffles  to  guest  appearances  by  movie  stars.22 
While  stores  differ  as  to  the  extent  of  promotion,  an  endeavor  has 
been  made  to  make  the  super  a  family  place  to  shop,  a  source  of 
evening  entertainment,  a  place  to  go.  Snack  bars,  magazine  sections 
for  children,  soda  fountains,  kiddyland  rides,  and  special  attractions 
galore  have  abounded  in  certain  supers.  Yet,  the  food-chain  operat- 
ing statements  for  1958,  shown  in  Table  4-2,  indicated  advertising 
and  promotion  expense  (including  trading  stamps)  to  be  1.88  per 

22  Pragmatic  operators  will  find  of  extreme  value  a  series  of  articles  entitled 
1,000-and-one  Super  Promotion  Ideas,  which  started  in  the  March,  1951,  issue 
of  Super  Market  Merchandising  and  continued  intermittently  until  September, 
1952.  These  ideas,  together  with  practical  illustrations,  cover  the  topics  of  grand 
openings,  storewide  promotions,  institutional  campaigns,  anniversaries,  and  spe- 
cific product  promotions.  Also  of  value  is  an  article  "51  Public  Relations  Ideas," 
Super  Market  Merchandising,  XXIV,  no.  5,  May,  1959,  p.  113. 


66  Supermarketing 

cent  of  sales.  Surveys  conducted  by  the  magazine  Super  Market 
Merchandising  indicated  that  advertising  expenditures  (excluding 
stamps)  in  1955  and  1956  were  0.84  and  0.93  per  cent  of  sales,  re- 
spectively.23 

Promotion  can  take  two  directions.  One  is  the  special,  short-run 
type;  the  other  is  the  long-run,  regular  promotion,  usually  of  a  pre- 
mium nature.  The  former  is  exemplified  by  the  following: 

1.  Grand  openings:  free  gifts  or  night  club  shows 

2.  Storewide  promotions:  airplane  ride  with  the  purchase  of  $25 
or  more,  mystery  shopper  sale,  or  finder's  keepers  sale 

3.  Institutional:  polio  campaign  or  set-up  of  art  galleries 

4.  Anniversary:  serve  breakfast  or  give  birthday  cakes  to  all 
babies  born  the  week  of  the  sale 

5.  Holiday:  free  trimmings  if  you  purchase  a  turkey  at  Thanks- 
giving 

6.  Product  lines:  half-cent  sale  or  shopping  bag  specials  full  of 
canned  goods 

The  regular  or  constant  type  of  promotion  typically  involves  a 
premium.  There  are  four  types. 

1.  Giveaways:  Have  a  lottery  every  week  or  give  a  certain  dish 
of  a  china  set  with  a  stated  dollar  purchase.  Stagger  the  kind  of  dish 
given  away  so  that  it  will  take  several  months  to  get  a  whole  set. 

2.  Discount-on-purchase  plan:  Offer  certain  merchandise  at  a  dis- 
count if  customers  purchase  a  certain  dollar  amount.  The  merchan- 
dise sold  at  a  discount  can  range  from  special  premiums  to  regular 
merchandise  carried. 

3.  Cash  register  receipt:  Save  receipts,  and  after  they  total  a  cer- 
tain prescribed  amount,  offer  the  customer  a  premium  such  as  a 
dollar  salad  bowl. 

4.  Stamp  or  coupon  plan:  Give  coupons  or  certificates  to  be  ap- 
plied to  the  purchase  of  merchandise  carried  by  the  store.  Or  use 
the  conventional  type  of  stamp  plan  whereby  stamps  are  given  gen- 
erally at  the  rate  of  one  stamp  for  each  10-cent  purchase.  The  stamps 

23  "How's  Business,"  Super  Market  Merchandising,  XXII,  no.  8,  August,  1957, 
p.  113. 


Selling  Operations  67 

are  saved  in  a  booklet  and  redeemed  for  a  great  variety  of  mer- 
chandise premiums. 

Of  all  the  regular  type  of  promotion  plans,  trading  stamps  have 
become  the  most  vital  promotional  tool  for  supermarket  operators. 
A  study  made  by  Progressive  Grocer  indicates  that  the  typical  super 
which  issues  stamps  spends  2.03  to  2.06  per  cent  of  the  sales  dollar 
for  this  device.24  The  general  use  of  trading  stamps  has  grown  un- 
evenly and  cyclically  since  the  1890's,  with  a  department  store  gen- 
erally as  the  core.  While  some  supers  introduced  trading  stamps 
earlier,  their  general  acceptance  dates  from  about  1950.  For  a  super- 
market to  use  this  promotional  tool  successfully,  certain  prerequi- 
sites must  be  met.  There  are  six  discernible  features.25 

1.  The  user  should  be  part  of  a  group  of  different  stores  reason- 
ably close  to  each  other  geographically.  All  should  handle  the  same 
stamp,  with  the  super  or  a  department  store  as  the  center  of  influ- 
ence. 

2.  Stamps  are  promotional;  customers  must  be  encouraged  to  save 
them  and  associate  the  stamps  with  that  particular  store. 

3.  Stamps  must  obtain  and  hold  additional  volume;  while  the  vol- 
ume increase  varies,  at  least  a  10  per  cent  increase  in  sales  is  needed 
to  break  even  on  the  stamp  cost. 

4.  The  super  must  be  able  to  handle  added  volume  without  ma- 
terially increasing  the  overhead. 

5.  Stamps  are  not  a  panacea  for  supers  whose  quality  and  type 
of  service  are  inferior  to  that  offered  by  competitors. 

6.  Stamps  do  not  permit  much,  if  any,  independence  in  pricing. 
The  use  of  trading  stamps  reached  its  zenith  in  1956  when  39  per 

cent  of  the  supermarkets  reported  using  this  premium 26  In  1957 
the  upward  trend  finally  halted  when  only  38  per  cent  reported  us- 
ing stamps;  in  1958  only  35  per  cent  reported  stamp  plans  in  opera- 

24  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1958),  p. 
F-19. 

25  Albert  Haring  and  Wallace  O.  Yoder,  Trading  Stamp  Practice  and  Pricing 
Policy  (Bloomington:  Indiana  University,  1958),  p.  284. 

26  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1959),  p. 
F-13. 


68  Supermarketing 

tion.  However,  there  is  no  indication  that  stamps  will  fade  into  the 
position  of  relative  insignificance  as  their  past  history  purports,  in- 
asmuch as  the  major  factors  that  led  to  stamp  ascendency  will  con- 
tinue to  influence  the  market.27  Indications  are  that  certain  indus- 
try giants  may  adopt  stamps  as  a  promotional  tool,  with  market 
tests  being  conducted  on  a  limited  experimental  basis. 

Large  Inventory 

Merchandising  is  defined  as  the  adaptation  of  a  product  to  fit  the 
requirements  of  the  buyer,  coupled  with  the  effective  presentation 
of  such  goods.28  Supermarkets  merchandise  through  their  buyers 
and  buying  committees  who  screen  the  veritable  horde  of  items  and 
deals  presented.  Merchandising  is  completed  by  the  various  display 
and  sales  techniques  that  result  in  the  movement  of  goods  to  the 
ultimate  consumers. 

Supermarkets  have  carried  larger  and  more  diversified  inventories 
in  an  effort  to  increase  sales.  Examine  the  increase  of  the  number 
of  items  carried:  29 

Year  Items 

1928 867 

1946 3,000 

1950 3,750 

1955 4,723 

1957 5,144 

1958 5,600 

This  increase  resulted  in  part  from  the  shopper's  desire  to  select 
from  many  lines.  In  addition,  manufacturers  produced  and  promoted 
new  items  in  accord  with  the  strong  desire  of  the  housewife  to  want 
convenience  in  food  preparation.30  Ingenuity  and  skill  of  food  proc- 
essors created  new  and  better  products,  such  as  frozen  juices  and 

27  Eugene  Beem,  "Who  Profits  from  Trading  Stamps,"  Harvard  Business  Re- 
view, Vol.  35,  no.  6,  November-December,  1957,  p.  121. 

28  T.  N.  Beckman,  H.  H.  Maynard,  and  W.  R.  Davidson,  Principles  of  Market- 
ing (New  York:  The  Ronald  Press  Co.,  1952),  p.  5. 

29  Facts  in  Grocery  Distribution,  op.  cit.,  p.  F-3. 

30  "The  Fabulous  Market  for  Food,"  Fortune,  XLVIII,  no.  4,  October,  1953, 
p.  135. 


Selling  Operations  69 

cake  mixes.  Most  supers  are  cramped  for  space;  it  is  a  constant  fight 
to  get  merchandise  on  display.  Manufacturers'  salesmen  do  not  sell 
merchandise  to  supermarket  buyers;  instead  they  sell  dollar  profits 
to  the  supers  for  granting  them  location  and  display  space  in  the 
store.  In  the  case  of  many  new  items  or  brands,  advertising  done  to 
presell  the  customer  is  not  sufficient  inducement  to  buy.  Various 
promotions,  premiums,  coupons,  and  deals  are  required  to  get  the 
item  carried. 

Basically,  an  item  is  judged  for  stocking  in  supermarkets  on  turn- 
over, gross  margin,  and  expense  of  handling  and  selling.31  Inherent 
in  these  major  features  are  space  for  display,  storage,  competing 
lines  handled,  advertising  allowances,  promotional  support,  items 
given  a  store,  and  merchandise-returns  policy.  These  criteria,  which 
influence  profits,  vary  for  different  kinds  of  merchandise.  The  super- 
market has  attempted  to  attain  a  large  volume  ( and  its  resultant  ad- 
vantages) through  a  high  rate  of  turnover.32  Rates  for  selected 
supermarket  chains  for  1956  are  shown  in  Table  4-5.33  These  range 
from  a  low  of  7.8  for  A.  J.  Bayless  Markets,  Inc.,  to  a  high  of  14.94 
for  Daitch  Crystal  Dairies,  Incorporated.  A  turnover  of  about  12 
times  per  year,  or  once  a  month,  appears  to  be  average.  The  Harvard 
Study  of  Selected  Food  Chains  indicated  a  stock  turnover  of  12.3 
for  1958.34 

The  wide  variation  in  turnover  rates  is  in  part  attributed  to  the 
lines  of  merchandise  stressed  by  the  respective  companies.  The 
trend  toward  larger  stores  in  the  postwar  period  has  offered  addi- 
tional shelf  space  for  display  and  has  made  the  super  a  bonanza  for 
visiting  salesmen.  The  increase  in  number  and  kind  of  food  items 
carried,  coupled  with  nonfood  lines,  has  tended  to  lower  turnover 
rates  in  the  postwar  period  for  many  concerns.  As  an  example,  be- 

31  Malcolm  P.  McNair,  "Thinking  Ahead  in  Retailing,"  Super  Market  Mer- 
chandising, XV,  no.  8,  August,  1950,  p.  106. 

32  Milton  Alexander,  "Where  We  Stand  on  Non-food  Merchandising,"  Pro- 
gressive Grocer,  XXXI,  no.  10,  October,  1952,  p.  200. 

33  The  supermarket  chains  listed  in  Table  4-5  were  those  whose  detailed 
operating  statistics  were  published  in  Moody's  Industrial  Manual. 

34 Wilbur  B.  England,  Operating  Results  of  Food  Chains  in  1958  (Cam- 
bridge: Harvard  Business  School,  Bulletin  156,  1959),  p.  33. 


70  Supermarlceting 

tween  1950  and  1956  the  turnover  for  Colonial  Stores,  Incorporated, 
dropped  from  15.0  to  10.3;  for  Lucky  Stores,  Incorporated,  from 
10.8  to  7.9;  and  for  Market  Basket,  Incorporated,  from  11.7  to  10.2. 
This  is  a  merchandising  trend  that  management  must  watch.  How- 

TABLE  4-5  * 

Annual  Inventory  Turnover  of  Selected  Supermarket  Chains 
for  the  Year  1956. 


Company 

Turnover 

American  Stores  Co. 

11.7 

A.  J.  Bayless  Markets,  Inc. 

7.8 

Century  Food  Markets  Co. 

11.3 

Colonial  Stores,  Inc. 

10.3 

Daitch  Crystal  Dairies,  Inc. 

14.9 

Fisher  Bros.,  Co. 

11.2 

Food  Fair  Stores,  Inc. 

14.8 

Food  Mart,  Inc. 

9.5 

Grand  Union,  Inc. 

11.2 

Jewel  Tea  Co.,  Inc. 

10.8 

Kroger  Co. 

11.5 

Lucky  Stores,  Inc. 

7.9 

Market  Basket 

10.2 

Purity  Stores 

13.0 

Safeway  Stores,  Inc. 

10.9 

Shaffer  Stores  Co. 

10.2 

Shopping  Bag  Food  Stores 

10.2 

Sunrise  Supermarkets  Corp. 

13.7 

Thriftmart,  Inc. 

7.9 

Weingarten,  J.,  Inc. 

9.8 

*  These  statistics  are  calculated  from  data  contained  in  Moody's  Industrial 
Manual.  Cost  of  sales  is  divided  by  average  inventory  at  cost. 

ever,  profits  have  not  appeared  to  suffer  inasmuch  as  gross  margins 
generally  have  improved  for  concerns  that  lower  turnover  to  carry- 
more  lines.  As  a  generalization  from  the  1956  data,  stores  with  the 
lower  inventory  turnover  rates  tend  to  have  the  higher  gross  mar- 
gins.35 

Supermarkets  have  enjoyed  a  high  inventory  turnover  as  com- 
pared with  that  of  other  retailers,  as  shown  by  the  statistics  in  Table 

35  Gross  margins  are  discussed  in  Chapter  5. 


Selling  Operations  71 

4-6.  The  average  turnover  of  about  12  times  per  year  is  approxi- 
mately triple  that  for  department,  drug,  and  variety  stores,  which 
average  about  four  times  per  year.  Simply,  the  velocity  of  goods  in 
and  out  of  a  super  is  three  times  that  for  a  department,  drug,  or 
variety  store;  or,  a  supermarket  buys,  stocks,  sells,  makes  a  profit, 
and  repeats  the  cycle  about  three  times  while  a  drug,  department, 
or  variety  store  is  doing  it  once  with  the  same  dollar  inventory.  This 
is  a  vital  consideration  in  the  handling  of  nonfood  lines. 

Addition  of  Nonfood  Products 

Akin  to  the  problem  of  controlling  a  large  inventory  is  that  of 
adding  nonfood  products  to  the  line.  The  supermarket  has  incorpo- 
rated in  its  operation  the  rapidly  moving  meat,  dairy,  and  produce 

TABLE  4-6 

Annual  Inventory  Turnover  of  Various  Lines 
of  Retailing  for  the  Year  1954. 

Department  stores  3.7  * 
Drug  stores  3.9  f 
Hardware  stores  with  sales  over  $200,000  2.3  \ 
Jewelry  stores  with  sales  over  $500,000  1.1  § 
Variety  stores 4.2  | 

*  Controllers  Congress,  1954  Merchandise  and  Operating  Results  (New  York: 
National  Retail  Dry  Goods  Association,  1955),  p.  1. 

f  Lilly  Digest  (Indianapolis:  Eli  Lilly  and  Company,  1955),  p.  21. 

t  "1954  Retail  Hardware  Survey,"  Hardware  Retailer,  June,  1955,  p.  14. 

§1954  Operating  Statistics  (New  York:  American  National  Retail  Jewelers 
Association,  1955),  p.  4. 

fl  "Harvard  Report  on  Variety  Chains,"  Chain  Store  Age,  Variety  Store  Man- 
agers Edition,  XXXI,  no.  8,  August,  1955,  p.  62. 

items;  but  it  also  has  concentrated  on  fast-turnover  nonfoods  which 
have  experienced  higher  markup  and  profits.  For  the  year  1958, 
food  stores  sold  $1.82  billion  in  nonfood  items  exclusive  of  tobacco 
products.  Of  this  group,  health  and  beauty  aids,  with  sales  of  $1.10 
billion,  were  the  largest  group.36  This  substantial  $1.10  billion  total 

36  Facts  in  Grocery  Distribution,  op.  cit. 


'2  Supermarketing 

represented  60  per  cent  of  the  entire  national  volume  of  health  and 
beauty  aids.  Other  classes  of  nonfoods  included  greeting  cards,  mag- 
azines and  books,  toys,  records,  stationery,  clothing,  dry  goods,  and 
film.  In  addition,  tobacco  products  of  $1.8  billion  were  sold  in 
grocery  stores  during  the  year  1957.37  A  study  made  by  Chain  Store 
Age  disclosed  that  the  1959  supermarket  transacted  4.3  per  cent  of 
total  sales  in  tobacco  products,  2.3  per  cent  in  health  and  beauty 
aids,  1.1  per  cent  in  housewares,  and  0.5  per  cent  in  magazines  and 
books.38 

The  super  is  basically  a  food  store;  many  of  these  nonfood  lines 
create  a  problem  of  buying,  stocking,  rotating,  and  selling  that  dif- 
fers from  the  food  departments.  While  the  bulk  of  nonfoods  are 
handled  through  the  supermarket  buying  division,  the  tasks  of  mer- 
chandising nonfoods  have  been  simplified  partly  by  the  use  of  rack 
jobbers  for  at  least  part  of  the  needs,  as  shown  by  the  data  in  Table 
4-7.  The  rack  or  short-order  jobber  performs  the  function  of  stock- 

TABLE  4-7  * 

Source  of  Nonfood  Products  in  Supermarkets 

Expressed  as  a  Percentage  of  Stores 

Using  the  Source. 


Source 

Drugs 

Housewares 

Toys 

Soft  Goods 

Manufacturer 

67.2 

58.3 

65.5 

79.2 

Rack  jobber 

24.1 

66.8 

28.4 

46.6 

Food  wholesaler 

7.6 

3.6 

2.0 

48 

Other  wholesaler 

12.1 

36.4 

11.4 

4.7 

Concessionaire 

0.0 

0.1 

0.6 

0.4 

*  "Non-Foods  Jump  to  Major  Rank,"  Super  Market  Merchandising.  XIX  no 
1,  January,  1954,  p.  36.  '       ' 

ing  and  rotating  merchandise  and  keeping  the  shelves  clean.  The 
general  practice  has  been  for  the  store  to  receive  25  per  cent  as  its 

37  Supermarket  News,  April  14,  1958,  p.  52. 

38  "What  Do  Food  Chains  Sell?"  Chain  Store  Age,  Grocers  Manual  Issue, 
July,  1959,  p.  109. 


Selling  Operations  73 

share  of  all  merchandise  sold.39  Stock  left  in  the  store  by  the  rack 
jobber  normally  remains  the  property  of  the  jobber  until  sold.  Mer- 
chandise is  sold  in  the  regular  manner,  and  the  consumer  does  not 
know  that  consigned  products  are  being  purchased. 

In  a  study  covering  the  influence  of  nonfood  merchandise  on  food 
products,  the  following  data  were  disclosed:  40 

1.  Supers  reduced  the  amount  of  space  for  food  products  by  less 
than  10  per  cent  in  order  to  stock  nonfoods. 

2.  New  stores  were  built  larger  so  as  to  handle  both  lines. 

3.  The  food  lines  that  suffered  most  were  the  slow  turning,  less 
profitable  ones. 

4.  The  nonfood  lines  carried  had  to  turn  over  rapidly,  to  take  up 
little  room,  and  to  be  adapted  to  self-service  sale  and  not  require 
technical  selling. 

Furthermore,  studies  revealed  that  visits  to  food  stores  were  about 
four  times  more  than  those  to  every  drug  store  and  eight  times  more 
than  to  every  hardware  store.41  Mathematically  there  was  greater 
chance  for  displayed  merchandise  to  be  purchased  in  a  super.  The 
trend  toward  the  sale  of  nonfoods  in  supers  has  been  pronounced 
in  the  postwar  period. 

One  of  the  more  recent  nonfood  trends  has  been  the  marriage  of 
the  discount  house  and  the  supermarket  in  the  form  of  giant  mer- 
chandising colossi.42  Safeway  Stores,  Incorporated,  has  opened 
a  discount  center  within  one  of  its  food  markets  in  Bakersfield,  Cali- 
fornia, in  which  appliances,  sporting  goods,  and  related  items  are 
featured.  Schwegmann  Brothers  has  opened  a  store  in  New  Orleans 
with  189,000  sq  ft  of  space  on  the  first  floor  and  55,000  sq  ft  of  sell- 
ing space  on  the  mezzanine  to  merchandise  an  infinite  variety  of 
stock.  Two  Guys  from  Harrison  and  the  National  Grocery  Company 

39  Interview  with  Chris  Tarrant,  Secretary,  Grocerland  Co-operative,  Inc., 
Chicago,  Illinois,  on  June  20,  1957. 

40  "Supers  Bid  Welcome  to  Soft  Goods,"  Super  Market  Merchandising,  XVIII, 
no.  7,  July,  1953,  p.  27. 

41  Gilman,  op.  cit. 

42  "The  Super  Super  Market,"  Super  Market  Merchandising,  XXII,  no.  7, 
August,  1957,  p.  56. 


74  Supermarketing 

have  opened  a  110,000-sq  ft  operation  estimated  to  do  $20,000,000 
in  food,  durable  goods,  auto  accessories,  and  promotional  items. 
Merchandise  is  received  directly  from  the  manufacturer  in  drop  ship- 
ments. Retailing  innovations  of  this  type  may  cause  an  upheaval  in 
the  world  of  retailing. 

SUMMARY 

Supermarkets  have  adopted  practices  that  have  led  toward  increased 
sales  per  store.  These  practices  have  included  low  price  policies,  mass 
displays,  large  stocks  (but  carefully  selected  as  to  turnover),  self-service, 
promotions,  addition  of  certain  nonfood  departments,  and  improved  ap- 
pearance and  services.  Excellent  merchandising  practices  to  obtain  in- 
creased sales  per  square  foot  of  floor  space  and  linear  display  space  have 
been  pursued.  Management  has  taken  advantage  of  the  desire  of  the 
consumer  for  one-stop  shopping  by  selection  of  merchandise  and  expand- 
ing store  building  programs.  Simply,  the  policy  is  to  attract  the  consumer 
and  attractively  display  a  variety  of  fast-turning  merchandise  that  can  be 
purchased  as  a  result  of  planned  purchases  as  well  as  impulse  buying. 

These  selling  policies  are  a  must  if  a  store  is  to  realize  its  full  potential 
during  its  lifetime,  the  length  of  which  is  governed  by  unpredictable 
factors.  Detrimental  population  shifts  may  take  place  in  a  store's  trading 
area,  competition  may  move  in,  or  the  facilities  of  the  store  may  become 
outmoded.  A  given  store  has  certain  facilities  with  which  to  make  a  profit, 
and  in  the  main,  these  resources  do  not  always  appear  to  be  used  at  maxi- 
mum capacity.  Thus  management  must  strive  to  make  the  most  out  of  the 
facilities  over  a  predetermined  period  of  time.  In  a  store's  trading  area, 
management  must  strive  to  obtain  its  maximum  share  of  the  available 
market  commensurate  with  the  store  facilities.  The  marginal  customer  at- 
tracted or  the  extra  dollar  of  sales  to  the  established  customer  has  a  sig- 
nificant impact  on  profits  of  a  store.  Not  only  does  the  added  sales  dollar 
reflect  in  the  normal  profit  percentage,  but  it  also  contributes  to  an  in- 
creased profit  percentage.  This  interesting  phenomenon  will  be  presented 
in  Chapter  7  after  margin,  expense,  and  profit  relationships  have  been 
examined. 


BUYING  OPERATIONS 
AND  MARGINS 


INTRODUCTION 

The  preceding  chapter  pointed  out  the  necessity  for  a  large  vol- 
ume per  super  and  examined  the  selling  techniques  designed  by 
supermarkets  to  generate  this  needed  large  volume.  It  is  the  pur- 
pose of  this  chapter  to  continue  the  study  of  supermarketing  prin- 
ciples, still  in  the  framework  of  an  operating  statement.  Attention 
in  this  section  is  focused  on  ( 1 )  cost  of  goods  sold  and  ( 2 )  principles 
involved  in  the  establishment  of  gross  margins.  The  former  includes 
a  review  of  buying  practices  and  techniques  developed  by  this  in- 
dustry. 

COST  OF  GOODS  SOLD 

There  is  a  maxim  in  retailing  that  anything  well  bought  can 
be  sold  at  a  profit.  Department  stores  recognized  this  principle  early, 
as  did  food  chains.  Buying  is  an  area  of  specialization  in  itself,  and 
the  demise  of  the  small  food  store  can  be  attributed  to  a  large  ex- 
tent to  improper  or  inept  purchasing. 

Balance  of  Buying  Power  Favors  Supers 

Supermarkets  in  1958  had  sales  of  $28.7  billion.1  Inasmuch  as  cost 
of  goods  sold  in  a  supermarket  averages  about  79.50  per  cent  of  the 
sales  dollar,  merchandise  purchases  approximated  $22.8  billion  in 
1958,  assuming  no  major  change  in  inventory  position  by  the  mem- 
bers.2 Supers,  in  the  aggregate,  wield  a  powerful  buying  force. 

1  See  Table  1-2. 

2  See  Table  4-2. 

75 


76  Supermarketing 

Furthermore,  the  strong  trends  toward  larger  stores  and  more 
stores  under  a  common  ownership  through  horizontal  integration 
have  given  the  individual  members  of  this  industry  more  potent  bar- 
gaining power.  Even  an  individually  owned  store  with  typical  yearly 
sales  of  $1,000,000  is  a  highly  respected  customer,  since  purchases 
for  that  operation  approximate  $800,000.  As  a  result,  transactions  to- 
day between  the  buyer  (the  super)  and  the  seller  (the  manufac- 
turer) are  more  of  a  cooperative  venture  in  which  the  manufacturer 
needs  the  assistance  and  cooperation  of  the  supermarket. 

Routine  Buying  Policies 

Many  of  the  purchases  of  a  supermarket  are  of  a  routine  nature 
from  established  sources  of  supply.  It  would  be  difficult  to  envisage 
a  super  without  Ritz  crackers  or  Campbell's  tomato  soup.  Responsi- 
bility for  buying,  the  actual  placing  of  the  order,  varies  according 
to  the  size  and  organizational  structure  of  the  company.  Specialized 
buyers  are  used  by  the  large  chains  for  routine  buying,  with  store 
managers  requisitioning  from  the  warehouses.  In  some  smaller  or- 
ganizations the  entire  buying  responsibility  for  routine  purchases 
is  handled  by  one  individual.  Some  firms  become  members  of  whole- 
sale or  retail  voluntary  chains  in  order  to  procure  staple  items  at 
low  cost.  Department  managers,  specializing  in  certain  areas  such 
as  produce  and  meat,  have  assisted  in  routine  procurement  for  the 
one-or-few  unit  operations.  Ordering  and  shelf  stocking  of  certain 
items  frequently  are  handled  by  manufacturers'  salesmen  under  the 
authorization  of  the  owner,  manager,  or  person  responsible  for  buy- 
ing. 

Yet,  even  in  the  purchase  of  regular  items,  care  must  be  taken 
to  make  certain  that  the  best  possible  prices  and  deals  are  ob- 
tained. The  purchase  of  routine  merchandise  must  be  an  integral 
part  of  the  selling  program.  The  buyer  must  be  aware  of  special  pro- 
motions, displays,  local  and  national  advertising,  economical  han- 
dling of  merchandise,  warehousing,  promptness  of  delivery,  and 
turnover.  Some  of  the  larger  firms,  such  as  Jewel  Tea  Company, 
have  acquired  electronic  computers  to  handle  the  logistics  problem 


Buying  Operations  and  Margins  77 

of  most  economical  handling  and  warehousing  of  merchandise.  In 
turn,  manufacturers  must  not  be  complacent  about  their  established 
brands  in  a  super.  Commodity  analysis  constantly  takes  place,  either 
subjectively  by  a  busy  owner  or  manager  or  objectively  by  account- 
ants and  statisticians  who  compute  dollar  profit  per  linear  foot  of 
display  space.  No  item  on  the  shelves  of  a  super  is  in  a  haven.  It 
must  sell  or  be  eliminated. 

New  Products— Life  Blood  of  a  Super 

Merchandise  that  is  well  established  in  a  supermart  under  a  sys- 
tem of  cooperation  between  the  manufacturer  and  the  supermarket 
is  "bread  and  butter"  volume.  These  items  reflect  customers'  needs 
and  wants  and  move  off  the  shelves.  However,  a  dynamic  super- 
market that  is  striving  for  added  volume  and  a  greater  profit  per- 
centage must  evaluate  successfully  new  products  on  a  continuous 
basis.  New  items  that  sell  are  the  volume  builders  that  a  super  needs 
to  add  increased  profits  to  the  store.  A  supermarket  retains  its  basic 
competitive  position  in  a  trading  area  by  3 

1.  Offering  an  expanding  variety  of  merchandise. 

2.  Developing  a  good  reputation  for  offering  new  items. 

3.  Functioning  as  the  purchasing  agent  for  the  community. 

4.  Differentiating  its  store  from  competition. 

5.  Associating  with  the  news  value  inherent  in  new  products. 
The  problem  of  adding  new  merchandise  to  the  line  becomes 

more  acute  because  of  the  difficulty  in  defining  exactly  what  a  new 
product  is.  A  new  item  can  be  4 

1.  A  product  that  hasn't  existed  previously  or  a  product  so 
changed  as  to  make  most  existing  items  obsolete. 

2.  A  product  that  has  been  changed  in  varying  degree  in  con- 
struction, design,  color,  size,  or  package. 

3.  A  product  on  the  market  not  previously  handled  by  the  par- 
ticular super. 

3E.  B.  Weiss,  Winning  Chain  Store  Distribution  for  New  Products  (New 
York:  Doyle,  Dane,  Bernbach,  Inc.,  1956). 
4  Ibid. 


78  Supermarketing 

4.  An  old  item  made  by  a  new  manufacturer. 
Supermarket  attitude  toward  new  items  will  vary,  depending  upon 
how  new  products  fall  into  these  divisions  as  well  as  upon  the  pres- 
tige and  record  of  the  supplier. 

Buying  Committee 

As  a  result  of  buying  complexities  of  stocking  the  myriad  of  new 
items  and  the  importance  of  integrating  purchasing,  sales,  advertis- 
ing, and  promotion  into  a  unified  merchandising  program,  super- 
markets have  developed  buying  or  merchandise  committees.  Ap- 
proximately 88  per  cent  of  the  supermarkets  have  these  committees, 
which  replaced  food  retailing  by  a  federation  of  individual  apron- 
stringed  grocers  with  a  select  group  of  skilled  merchandisers  having 
the  power  to  match  giant  manufacturers.5  The  stated  purpose  of 
these  committees  is  to  6 

1.  Remove  buying  decisions  from  an  emotional  atmosphere. 

2.  Prevent  a  buyer's  personal  likes  and  dislikes  from  entering  into 
a  decision. 

3.  Help  store  and  field  personnel  to  understand  buying  opera- 
tions at  headquarters  better  through  rotating  participation  of  some 
members. 

4.  Capitalize  on  collective  knowledge. 

5.  Provide  for  the  orderly  continuity  of  buying  operations. 
Buying  committees  range  from  3  to  as  many  as  17  members.  They 

are  made  up  of  a  buyer  and  other  top  advertising,  promotion,  mer- 
chandising, and  sales  executives.  Frequently  store  managers  are 
included  to  make  their  operation  more  democratic.  Each  member 
on  the  committee  has  one  vote,  and  it  takes  a  simple  majority  to  add 
a  new  item  to  the  line.  Faced  with  the  problem  of  buying  many  lines 
of  merchandise,  some  firms  have  organized  two  buying  committees. 
Activities  of  these  committees  are  as  varied  as  their  composition. 
Some  assemble  once  every  week,  and  depending  upon  the  number 

5  From  an  address  by  William  C.  Nugent  to  the  Grocery  Manufacturers  of 
America,  Inc.,  on  November  12,  1957,  at  New  York  City. 

6  Ibid. 


Buying  Operations  and  Margins  79 

of  products  to  be  considered,  the  meetings  run  from  1  to  6  hours. 
A  buying  committee's  decision  is  binding  in  that  a  buyer  cannot 
overrule  or  ignore  it.  The  group  decision,  however,  is  not  irrevo- 
cable. For  example,  if  a  product  is  rejected,  another  presentation 
generally  can  be  given  in  a  period  of  from  60  to  90  days  after  the 
rejection.  Some  committees  will  review  an  item  as  many  as  three 
times.  After  a  merchandise  group  selects  a  product,  store  managers 
must  introduce  the  item.  But  if  it  doesn't  sell,  a  manager  need  not 
reorder.  In  turn,  store  managers  in  some  supermarket  chains  can 
request  buying  committees  to  adopt  a  product.  It  must  be  remem- 
bered that  the  buying  committee  decisions  involve  the  entire  store 
system  and  not  just  one  store. 

The  results  of  merchandise  committee  decisions  have  been  ex- 
amined in  several  studies.  One  large  food  chain  reports  that  its  buy- 
ing office  has  presented  for  consideration  as  many  as  150  to  200  new 
items  per  week.7  If  all  were  accepted,  10,000  new  items  per  year 
would  be  added  to  this  chain,  which  normally  carries  4,000  items. 
A  study  of  the  activities  of  12  buying  committees  of  some  of  the 
largest  supermarket  chains  showed  that  out  of  496  products  ex- 
amined, 220  were  voted  favorably,  61  were  deferred,  and  215  were 
rejected.8  In  another  study,  the  buying  practices  of  eight  chains 
were  examined  for  the  period  of  March,  1954,  to  June,  1955.9  Thou- 
sands of  items  were  presented  to  the  buyers.  They  in  turn  screened 
new  items  and  submitted  only  1,433  products  to  the  respective  mer- 
chandise committees.  These  committees  disposed  of  the  new  items 
as  follows:  10 

Rejected 987 

Held  for  reconsideration 16 

Accepted  for  testing 10 

Recommended  for  special  promotion 

only 13 

7  Weiss,  Winning  Chain  Store  Distribution  for  New  Products,  op.  cit. 

8  Nugent,  op.  cit. 

9  William  Applebaum  and  Richard  Moulton,  An  Exploration  into  Reasons 
Why  Supermarkets  Add  and  Discontinue  Items  (New  York:  McCall  Corp., 
1956). 

io  Ibid. 


80  Supermarketing 

Accepted  part  of  the  line 29 

Accepted 378 

Items  reviewed 1,433 

In  all,  69  per  cent  of  the  items  presented  to  the  committees  of  these 
eight  chains  were  rejected  and  only  26  per  cent  were  accepted  un- 
conditionally. 

As  a  corollary  to  this  same  study  of  the  eight  chains,  the  major 
reasons  for  discontinuing  3,725  items  from  the  line  during  this  same 
16-month  period  were:  u 

Per  cent 

Slow  movement 42 

Did  not  fulfill  expectations 22 

Replaced  by  superior  product  ....  15 
Due  to  manufacturers'  action  .  .  .  .  11 
Other 10 

Merchandise  that  doesn't  sell  is  eliminated. 

In  cases  where  a  decision  to  add  an  item  is  questioned,  some  com- 
panies resort  to  consumer  panels  of  up  to  16  housewives  whose  opin- 
ions are  respected.  Other  companies  have  a  designated  test-store 
group  where  product  tests  are  regularly  conducted  in  order  to  assist 
the  merchandise  group. 

This  trend  of  employing  the  buying  committee  has  shifted  the 
duties  of  a  buyer  from  one  of  making  decisions  to  one  of  communi- 
cations. Buyers  make  decisions  on  the  original  screening.  After  this, 
they  generally  present  the  product  to  the  merchandise  committee 
for  a  group  decision.  In  the  committee  the  buyer  carries  but  one 
vote.  In  turn,  this  has  made  selling  on  the  part  of  the  manufacturer 
more  impersonal,  since  the  salesmen  seldom  appear  personally  be- 
fore the  committee.  The  salesman  merely  sells  the  buyer  and  fills 
out  comprehensive  data  sheets  so  that  the  buyer  in  turn  can  do  a 
creditable  job  of  presenting  the  proposal.  Table  5-1  contains  a  sug- 
gested form  of  the  Super  Market  Institute  to  be  filled  out  by  the 
salesman  for  use  in  the  buying  function.  This  type  of  impersonal 
selling  in  turn  requires  manufacturers  to 

ii  Ibid. 


Buying  Operations  and  Margins  81 

1.  Open  up  channels  of  communication  with  all  executives  hav- 
ing a  voice   in  new-item  determination. 

2.  Develop  new  methods  of  presenting  data  to  the  buying  com- 
mittee. 

3.  Understand  problems  confronting  chains  and  their  difficulties 
in  adopting  new  products. 

Supermarkets  in  turn  must  review  and  improve  the  functioning 
of  the  committee  as  to  operating  techniques  and  organization  in 
order  to  make  it  more  effective. 

TABLE  5-1  * 
Grocery  Promotion  and  New  Item  Fact  Sheet. 

1.  ITEM      PROMOTION    NUMBER    

2.  Date  presented Buyer  


3.  Starting  date Accepted  ( date ) 

4.  Closing  date Rejected  (date)  . 

5.  Type  of  promotion 


6.  Pack  and  size 

7.  Invoice  price  per  case 

8.  Freight,  if  any 


9.  Terms  (cash  discount) 

10.  Promotional  allowance 

11.  Total  cost  per  case 


FOR    BUYERS    USE 

This  Item  Reg.  Mdse. 

$ cost/case  $ 

$ cost/unit  $ 

$ suggested  retail    $ 

$ :__  %        profit/unit         $       :      % 

$ :      %       profit/case        $       :      % 


12.  Performance  requirements  for  promotional  allowance 

13.  Promotional  allowance  paid  by:   Check Off  invoice Free  mdse 

14.  Display  allowance:  Yes No 

15.  Advertising  allowance:  Yes No If  "yes,"  is  it  in  addition  to  promotion 

and  display  allowance? Tear  sheet  to  be  furnished?  Yes No 

16.  Are  allowances  over  and  above  regular  contract?  Yes No 

17.  Floor  stock  protection  on  regular  merchandise?  Yes No 

18.  Will  regular  merchandise  be  picked  up  while  deal  is  in  effect?  Yes No — 

19.  Display  material  available?  Yes No Delivered  to:   Store Ware- 
house  

20.  Will  deal  be  advertised  by  manufacturer?  Yes No If  "yes,"  to  what 

extent?    

National  media  

Local  media 

*  Super  Market  Institute. 


82  Supermarketing 

21.  Will  case  be  marked  "Deal?"  Yes No How  many  sides? 

22.  Is  sale  guaranteed?  Yes No If  "yes,"  what  basis? 


23.  Is  price  guaranteed  against  decline?  Yes No If  "yes,"  what  limits,  if 

any?    

24.  Manufacturer's  name  — 

25.  Manufacturer's  address 

26.  Local  representative 


27.  Local  representative's  address 
Additional  information:  


NEW   ITEMS 

(Complete  in  addition  to  first  sheet) 
1.  Who  handles  this  product  in  this  market? 

Name srp  f 

Name srp    

Name srp    


2.  What  advertising  and  promotion  is  being  done  in  this  market  by  manufac- 
turer?   . — _ — — — 


3.  What  advantage  is  there  in  stocking  this  item? 


4.  If  approved,  when  will  item  be  available  for  delivery? 

5.  Shipping  point  

6.  Transit  time  

7.  Best  routing 


8.  What  quantities  must  be  purchased  to  obtain  lowest  cost? 

9.  LCL  price Pool  car  price Car  price. 

Minimum Minimum Minimum 

10.  Are  drop  shipments  available?  Yes No 

Additional  Information  


f  Suggested  retail  price. 

Factors  Involved  in  Selecting  Individual  Products 

While  buying  committees  vary  as  to  composition  and  method  of 
operation,  they  generally  are  in  accord  as  to  the  factors  involved  in 
the  selection  of  merchandise.  Following  are  criteria  used  to  judge  a 
product:  12 

12  Address  by  William  C.  Nugent  presented  at  the  United  States  Wholesale 
Grocers'  Convention,  April  21,  1957,  St.  Louis,  Missouri. 


Buying  Operations  and  Margins  83 

1.  Will  product  return  a  fair  dollar  profit  in  terms  of  potential 
volume  and  shelf  space? 

2.  Does  the  consumer  want  the  product? 

3.  What  is  its  sales  potential? 

4.  Is  there  a  need  for  the  product? 

5.  How  will  the  product  be  advertised  and  promoted? 

6.  Are   there   advertising,   promotional,   or  display  allowances 
available? 

7.  Is  there  a  retailer  incentive  ( deal  goods )  ? 

8.  Is  a  product  of  good  quality? 

9.  Is  packaging  proper? 

10.  Is  the  manufacturer  reliable? 

11.  Does  competition  have  the  item? 

12.  Was  the  product  market-tested? 

13.  Is  the  product  timely— in  season? 

14.  Is  the  introduction  timely? 

15.  Will  it  bring  new  customers  to  the  store? 

16.  How  many  items  are  in  a  carton? 

17.  Does  stock  of  item  conflict  with  company  policy? 

18.  What  is  the  merchandise  returns  policy  of  the  manufacturer? 

19.  What  is  the  quantity  that  must  be  bought? 

20.  What  discounts  are  offered? 

A  manufacturer  will  do  well  to  weigh  these  factors  in  merchan- 
dising his  line  to  fit  in  with  these  requirements.  There  is  an  ever- 
increasing  problem  of  obtaining  distribution  of  new  products  in  the 
supermarkets. 

Make  or  Buy 

Akin  to  the  problem  of  product  selection  is  the  alternative  of  a 
supermarket:  whether  to  manufacture  or  to  purchase.  Different 
stores  have  different  policies  in  this  regard,  and  it  is  difficult  to  gen- 
eralize. 

The  industry  leader,  the  Great  Atlantic  and  Pacific  Tea  Company, 
has  long  been  an  advocate  of  manufacturing  as  well  as  marketing. 
Other  large  chains  have  entered  manufacturing  operations  on  a 


84  Supermarketing 

more  limited  scale,  primarily  in  bakery  and  coffee  lines.  The  factors 
that  determine  whether  a  product  should  be  manufactured  or  pur- 
chased include: 

1.  Investment  in  manufacturing  facilities 

2.  Alternative  use  of  funds 

3.  Frequency  of  depressed  conditions  in  the  line  so  that  advan- 
tageous purchases  can  be  made 

4.  Total  dollar  volume  of  the  specific  item 

5.  Total  dollar  volume  of  any  one  item  within  a  line 

6.  Strength  of  brand  preference  for  competing  products 

7.  Strength  of  the  emotional  buying  motive  for  the  item  as  a  re- 
sult of  strong  brand  preference  (e.g.,  baby  food) 

8.  Need  for  a  yardstick  to  insure  proper  costs  for  the  product 

Policy  on  Packer  versus  Private  Brands 

Closely  related  to  the  problem  of  "make  or  buy"  is  that  of  brand 
selection.  Supermarkets  got  their  start  in  the  self-service  sale  of 
nationally  known  brands.  In  today's  market,  however,  there  are  both 
packer  and  private  brands  crowding  the  shelves.  Packers'  brands 
include  nationally  known  products— Del  Monte  and  Dole— as  well 
as  little  known  or  unadvertised  brands  of  small  and  medium-sized 
packers.  Private  labels  exist  at  both  retail  and  wholesale  levels  and 
include  chain  brands.  The  private  labelers  acquire  their  merchandise 
from  manufacturers  of  various  sizes.  Some  of  the  private  brands  also 
are  packed  by  the  chain  factories  and  sold  as  chain  brands.  Thus 
chain  brands  can  be  both  private  brands  and  packers'  brands. 

For  example,  in  the  canned  goods  field,  nationally  advertised 
products  generally  command  a  higher  price  than  private  labels  or 
unknown  packers'  brands.  Competition  between  them  is  primarily 
on  a  price  basis.  Major  packers  who  know  possible  total  demand 
and  supply  conditions,  inventory  carry-over,  costs,  and  profit  possi- 
bilities attempt  to  establish  prices  on  their  branded  products,  quality 
considered.  In  turn,  they  are  underpriced  by  unknown  brands  that 
arrive  on  the  market  at  various  times  and  in  varying  quantities.  A 
retailer  may  never  again  carry  a  particular  private  brand.  In  bumper 


Buying  Operations  and  Margins  85 

crop  years,  the  price  spread  between  the  two  tends  to  increase  as 
smaller  packers  literally  dump  their  pack  on  the  market  and  force 
the  major  packers  to  take  a  new  price  position. 

Add  to  this  the  growing  importance  of  chain-branded  goods  that 
are  brought  into  the  store  under  the  broad  family  brand  of  the  re- 
tailer and  which  embrace  a  variety  of  food  products,  from  bread  to 
cheese.  Little  advertising  or  promotional  expense  is  incurred  other 
than  that  related  to  the  store  special  sales.  As  a  result  of  astute  buy- 
|  ing,  display  policies,  and  tie-in  of  the  product  with  the  general 
reputation  of  the  store,  the  chain  labels  have  been  taking  an  increas- 
ingly larger  share  of  the  market. 

Factors  involved  in  the  decision  to  use  chain  brands  are  for  the 
most  part  similar  to  those  involved  in  the  decision  whether  to  manu- 
facture or  to  purchase.  One  additional  feature  is  that  funds  need 
not  be  expended  for  plant  and  equipment  because  chains  have  been 
able  to  obtain  items  under  their  brand  from  small  manufacturers 
as  well  as  large  national  sellers  of  branded  products. 

Use  of  Buying  Associations 

Food  chains  and  large,  independent  supermarkets  have  integrated 
their  operations  by  performing  more  and  more  of  the  wholesale 
marketing  functions  and  even  some  of  the  manufacturing  activities. 
For  example,  approximately  80  per  cent  of  the  supermarkets  obtain 
their  grocery  products  through  their  own  central  warehouses,  from 
9  to  10  per  cent  obtain  their  merchandise  through  retailer-owned 
cooperatives,  3  per  cent  through  voluntary  chain  wholesalers,  and 
7  per  cent  through  no  central  warehouse  or  affiliation.13  As  a  re- 
sult of  their  own  wholesale  operations,  the  integrated  retailers 
generally  have  been  able  to  place  merchandise  in  their  stores  at  a 
cost  less  than  that  of  small  independent  merchants  who  buy  from 
service  wholesalers.  This  has  placed  the  large  operators  at  a  com- 
petitive advantage  in  this  high-volume,  narrow-profit  industry  in 
which  a  10  cent  price  advantage  on  a  case  of  tomato  catsup  is  sig- 
nificant. To  adjust  for  this  competitive  disadvantage  in  buying, 

13 Super  Market  Industry  Speaks  (Chicago:  Super  Market  Institute,  1956). 


86  Supermarketing 

many  of  the  independent  merchants  have  cooperated  with  each 
other  for  the  purpose  of  purchasing  primarily  staple  merchandise. 
In  1957  there  were  88,000  food  stores  that  were  members  of  volun- 
tary and  cooperative  buying  organizations.14  Although  most  of  these 
units  were  not  supermarkets  according  to  the  definition  established 
in  this  text,  inasmuch  as  their  volume  was  under  $500,000  annually, 
a  fair  amount  of  their  sales  of  $20.46  billion  was  transacted  by  super- 
market members.  Independent  Grocers  Alliance  of  America,  com 
monly  referred  to  as  IGA,  is  the  largest  of  the  voluntary  chains.  The 
5,300  member  stores  in  1957  transacted  approximately  $2.9  billion 
sales.15  While  only  234  of  their  United  States  outlets  and  20  Cana- 
dian stores  were  classified  as  supermarkets,  these  units  are  reported 
to  have  done  at  least  5  per  cent  of  the  retail  volume  of  this  voluntary 
organization.  Therefore  this  procurement  channel  must  be  con 
sidered  in  a  text  on  supermarkets  even  though  the  voluntaries  were 
developed  to  aid  the  smaller  merchant. 

There  are  basically  two  types  of  buying  associations  in  the  food 
industry.  One  is  the  wholesale-sponsored  voluntary  chain,  such  aj 
the  Red  and  White  Corporation  or  IGA.  Red  and  White  is  owned 
by  its  wholesale  members  throughout  the  country.  Its  headquarter* 
in  Chicago  conducts  many  varied  activities.  It  makes  arrangements 
with  manufacturers  to  pack  merchandise  for  its  wholesalers,  handles] 
all  quantity  and  net  buying  arrangements  which  are  available  to  the 
wholesalers  on  a  national  basis,  and  arranges  for  quantity  discount; 
on  a  national  basis  where  available.  Red  and  White  also  arranges! 
for  private  labeling,  furnishes  advertising  service,  and  works  witl 
the  member  stores  at  the  retail  level  to  improve  their  operation.  Thcl 
independent  retail  stores  in  turn  agree  to  purchase  a  certain  portioij 
of  their  requirements  through  the  respective  local  wholesale  mem 
ber.  There  is  no  requirement  that  an  individual  retailer  purchase  al] 
requirements  through  this  wholesaler.  In  the  similarly  operated  IGl 

14  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1958),  pj 
F-5.  i 

15  Interview  with  Mr.  Don  R.  Grimes,  assistant  to  the  president,  IGA,  Julyl 
1957. 


Buying  Operations  and  Margins  87 

voluntary  chain,  the  retailer  members  pay  2  per  cent  above  cost  of 
the  merchandise  to  their  IGA  local  wholesaler,  who  gets  "cash  on 
the  barrel  head."  Cash  discounts  vary  from  1  to  2  per  cent,  and  the 
local  retailer  also  pays  drayage. 

The  other  principal  method  of  purchasing  through  an  affiliation 
is  that  of  the  retail-sponsored  voluntary  chain  in  which  a  group  of 
retailers  form  a  cooperative  to  purchase  some  or  all  of  their  joint 
requirements.  The  association  is  financed  by  its  retail  members, 
whereas  financing  is  done  by  the  wholesaler  in  the  method  described 
previously.  Some  cooperatives  require  members  to  have  on  deposit 
funds  equal  to  each  week's  purchases.  In  return,  merchandise  is  de- 
livered to  the  respective  members  at  cost  plus  a  slight  percentage 
for  operation  of  the  association  plus  drayage.  In  some  cases  the  co- 
operative even  owns  and  operates  its  own  warehouse  facilities.  Co- 
operative profits  paid  to  the  members  are  based  on  the  ratio  of  the 
percentage  of  each  member's  purchases  through  the  cooperative  to 
the  total  sales  of  the  cooperative.  This  type  of  operation  is  used 
primarily  to  procure  staple  merchandise. 

Consigned  Merchandise 

The  final  method  of  acquiring  merchandise  is  that  of  consignment 
selling.  The  vast  majority  of  the  merchandise  sold  by  supers  is  pur- 
chased outright.  It  turns  over  rapidly,  and  thus  inventory  invest- 
ment is  kept  at  a  minimum.  Yet,  some  manufacturers  and  whole- 
salers leave  merchandise  with  supermarts  who  become  the  agents 
for  the  purpose  of  selling  the  goods.  Title  remains  with  the  manu- 
facturer, and  the  super  receives  its  compensation  in  the  form  of  a 
percentage  of  the  selling  price  at  which  the  goods  actually  are  sold. 
A  supermarket  will  use  this  arrangement  in  cases  in  which  it  does 
not  desire  to  tie  up  capital  in  merchandise  that  may  prove  to  be 
unsalable.  This  situation  arises  primarily  with  unknown  new  grocery 
products  of  questionable  merit  or  nonfood  items  with  which  the 
super  has  limited  experience.  It  is  in  conjunction  with  the  latter  case, 
nonfood  merchandise  placed  in  supers  by  rack  jobbers,  that  consign- 


88  Supermarketing 

ment  selling  is  significant.  Nonfood  sales  in  a  1958  super  averaged 
5  per  cent  of  total  sales.16 

Basically,  a  rack  jobber  sets  up  display  equipment  in  a  super- 
market, arranges  the  merchandise,  services  the  account  by  exchang- 
ing defective  goods  and  rebuilding  stocks,  and  suggests  how  the 
store  manager  can  tie  in  with  national  advertising.  The  super  re- 
ceives, as  its  compensation  for  rental  of  space  and  for  the  selling 
of  the  product,  from  25  to  35  per  cent  of  the  sales  price  of  each 
item.  The  margin  depends  upon  the  type  of  goods  handled  by  the 
particular  rack  merchandiser.  Some  jobbers  carry  a  complete  line; 
others  specialize  in  certain  merchandise  categories.  It  is  possible 
for  a  large  super  to  be  serviced  by  as  many  as  ten  specialized  rack 
jobbers  in  such  areas  as  hardware,  housewares,  health  and  beauty 
aids,  tobacco,  soft  goods,  toys,  stationery,  auto  supplies,  pet  food, 
and  electrical  items. 

Wide  diversity  exists  among  members  of  the  supermarket  indus- 
try in  the  use  of  rack  jobbers.  Even  divisions  within  the  same  com- 
pany may  vary  as  to  policy.  For  example,  the  stores  of  the  Great 
Atlantic  and  Pacific  Tea  Company  in  Baltimore  employ  an  old  drug 
wholesale  house  to  handle  their  health  and  beauty  aids  on  a  rack- 
jobbing  basis.17  The  same  company  in  Jacksonville,  Florida,  buys 
all  stationery  items  and  health  and  beauty  aids  direct  from  manu- 
facturers.18 As  supers  become  more  familiar  with  the  merchandising 
of  nonfood  items,  they  take  over  certain  lines  of  this  activity.  The 
items  taken  over  from  rack  merchandisers  generally  are  small  in 
size  and  moderately  priced;  they  contain  a  minimum  of  style  obso- 
lescence, sell  in  volume,  are  consumed  quickly,  display  easily,  and 
offer  a  fair  profit  margin.  The  extent  of  consignment  selling  by  rack 
jobbers  is  shown  by  the  data  in  Table  4-7.  Consignment  sellers  are 
the  second  most  important  source  of  nonfood  merchandise  in  supers. 

1QThe  Super  Market  Industry  Speaks  (Chicago:  Super  Market  Institute, 
1959). 

17  "How  Rack  Jobbers  Open  Doors  for  Sale  of  Non-foods  in  Supers,"  Sales 
Management,  Vol.  82,  no.  7,  April  3,  1959,  p.  44. 

1*  Ibid. 


Buying  Operations  and  Margins  89 

GROSS  MARGINS 

In  the  preceding  section,  buying  practices  and  techniques  de- 
veloped by  this  industry  were  reviewed.  The  importance  of  scientific 
purchasing  was  stressed  as  a  vital  requisite  to  the  fundamental 
method  of  operation  of  this  volume  merchandiser.  The  vast  array 
of  merchandise  carried  must  be  sold  at  relatively  low  prices  in  order 
to  represent  good  value  to  the  customer.  This  in  turn  requires  skill- 
ful buying. 

Like  all  retailers,  a  supermarket  purchases  merchandise  at  one 
price  and  in  turn  sells  it  at  a  higher  price.  In  turn,  out  of  its  sales 
dollar  it  must  obtain  the  cost  of  the  merchandise  and  leave  a  bal- 
ance (gross  margin)  to  cover  expenses  and  net  profit.  In  order  for 
a  balance  to  exist  in  the  form  of  gross  margin,  the  supermart  must, 
of  necessity,  furnish  services  for  which  its  customers  are  willing  to 
pay.  While  a  super  does  nothing  to  the  fundamental  form  or  shape 
of  the  goods,  it  does  give  them  added  value  in  the  form  of  time, 
place,  and  ownership  utility.  For  example,  it  enables  butter  pro- 
duced in  the  summer  in  Wisconsin  to  be  purchased  and  consumed 
by  a  family  in  New  York  in  the  winter.  This  measure  of  value  added 
by  the  supermarket  to  the  products  it  sells  is  its  gross  margin. 

Margins  differ  within  product  lines  and  among  individual  super- 
markets and  various  types  of  retailers.  Markups  also  vary  over  time. 
It  is  the  purpose  to  examine  these  facets  in  the  remainder  of  this 
chapter. 

Trends  in  Margins 

The  early  supermarkets  were  able  to  operate  on  gross  margins 
varying  from  10  to  14  per  cent  of  sales.19  This  was  a  considerable 
reduction  from  the  generally  accepted  19  to  20  per  cent  for  the  chain 
economy  store  and  the  independent  grocers  in  the  early  1930's.20 

19  Charles  F.  Phillips,  "The  Supermarket,"  Harvard  Business  Review,  XVI, 
no.  2,  Winter,  1938,  p.  192. 

20  United  States  v.  The  Great  A.  and  P.  Tea  Company,  U.S.  Circuit  Court  of 
Appeals,  7th  district,  Docket  9221,  Records  and  Briefs,  Vol.  II,  p.  162. 


90  Supermarketing 

The  Great  Atlantic  and  Pacific  Tea  Company  strove  for  a  12  per 
cent  gross  profit  once  it  had  adopted  supermarket  operation.21 

Industry  studies  on  gross  margin  first  were  made  in  the  period 
following  World  War  II.  The  magazine,  Super  Market  Merchandis- 
ing, conducted  an  industry-wide  survey  in  the  years  1947  to  1956 
and  reported  that  the  average  gross  margins  were:  ^ 


Year 

%  sales 

1947 

18.2 

1948 

17.7 

1949 

17.6 

1950 

17.7 

1951 

17.4 

1952 

17.9 

1953 

18.4 

1954 

18.8 

1955 

19.0 

1956 

19.6 

The  food  chain  supermarkets  indicated  gross  margins  that  ranged 
from  18.11  to  20.50  per  cent  of  sales,  as  shown  by  the  data  in  Table 
4-2. 

Statistics  in  Table  5-2  comprise  the  gross  margins  for  selected 
supermarket  chains.  The  1956  range  was  16.27  for  Shaffer  Stores 
Company  and  22.98  for  A.  J.  Bayless  Markets,  Incorporated.  The 
general  trend  of  gross  margins  for  the  selected  chains  has  been  up- 
ward in  line  with  that  for  the  industry.  For  example,  between  1950 
and  1956  the  gross  margin  for  Colonial  Stores,  Incorporated,  rose 
from  17.7  to  18.7  as  a  percentage  of  sales;  for  Food  Fair  Stores,  In- 
corporated, from  17.1  to  18.7;  and  for  Market  Basket,  Incorporated, 
from  18.8  to  19.6.  The  much  publicized  Schwegmann  Brothers,  In- 
corporated, New  Orleans,  constantly  strove  for  a  gross  margin  of 
only  10  per  cent,  but  in  recent  years  legal  difficulties  in  connection 
with  fair  trade  laws  have  forced  it  upward.23 

21  Ibid. 

22  These  statistics  from  1947  through  1951  are  from  the  yearly  surveys  pub- 
lished in  the  May  editions,  1948  through  1952,  respectively,  of  Super  Market 
Merchandising.  Statistics  for  1952  through  1956  are  from  the  yeariy  surveys 
published  in  August  1953  through  1957  editions  of  Super  Market  Merchan- 
dising. 

23  "Schwegmann  Bros.,  Inc.,"  Business  Week,  no.  1136,  June  9,  1951,  p.  120. 


Buying  Operations  and  Margins  91 

Forces  Behind  Increases  in  Margins 

Four  movements  have  been  present  since  the  1930's,  particularly 
since  World  War  II,  which  have  tended  to  force  gross  margins  up- 
ward. 

TABLE  5-2  * 

Gross  Margin,  Expense,  and  Net  Profit  (Before  Taxes)  as  a  Percentage 
of  Sales  for  Selected  Supermarket  Chains  for  the  Year  1956. 


Gross 

Net 

Company 

margin 

Expense 

profit 

American  Stores  Co. 

17.72 

15.15 

2.57 

A.  J.  Bayless  Markets, 

Inc. 

22.98 

17.75 

5.23 

Century  Food  Markets  Co. 

20.54 

18.59 

1.95 

Colonial  Stores,  Inc. 

18.68 

15.94 

2.74 

Daitch  Crystal  Dairies, 

Inc. 

19.91 

18.36 

1.55 

Fisher  Bros.,  Co. 

17.01 

14.23 

2.78 

Food  Fair  Stores,  Inc. 

18.68 

15.24 

3.44 

Food  Mart,  Inc. 

19.33 

15.88 

3.45 

Grand  Union  Co. 

19.68 

16.99 

2.69 

Jewel  Tea  Co.,  Inc. 

19.32 

15.48 

3.84 

Kroger  Co. 

17.83 

15.52 

2.31 

Lucky  Stores,  Inc. 

20.92 

17.36 

3.56 

Market  Basket 

19.63 

16.34 

3.29 

Purity  Stores,  Ltd. 

18.46 

16.09 

2.37 

Safeway  Stores,  Inc. 

17.75 

15.07 

2.68 

Shaffer  Stores  Co. 

16.27 

15.01 

1.26 

Shopping  Bag  Food  Stores 

22.22 

19.34 

2.88 

Sunrise  Supermarkets  Corp. 

18.60 

16.20 

2.40 

Thriftimart,  Inc. 

16.54 

13.77 

2.77 

Weingarten,  J.,  Inc. 

19.84 

17.13 

2.71 

*  Calculated  from  statistics  contained  in  Supermarket  News  Food  Industries 
Financial  Manual  (New  York:  Fairchild  Publications,  Inc.,  1957). 

1.  The  first  is  a  tendency  during  and  since  the  postwar  era  to  ex- 
pand into  nonfood  lines  which  earn  a  higher  markup  than  grocery 
products.  For  example,  health  and  beauty  aids  are  handled  at  about 
28  to  31  per  cent  gross  margin  as  shown  by  the  statistics  in  Table 


92  Supermarketing 

5-3.  Toys  and  certain  of  the  soft  goods  are  handled  at  about  30 
per  cent  markup.  Arrangements  with  rack  jobbers  return  to  the 
super  about  25  to  35  per  cent  of  the  selling  price.  Moreover,  many 
of  the  nonfood  lines  are  fair  traded.24 

2.  Second  is  a  tendency  for  families  to  purchase  better  and  more 
convenient  kinds  of  food  products.  Per  capita  consumption  of  meat 
and  fresh  produce  has  increased.  While  margins  vary  depending 
upon  store  policies,  meat  returns  a  gross  margin  of  about  17  to  22 
per  cent  and  produce  from  about  25  to  31  per  cent,  as  shown  by  the 
data  in  Table  5-3.  Frozen  foods,  including  prepared  dinners,  cur-  | 

rently  account  for  about  5  per  cent  of  supermarket  sales  and  re- 

i 
TABLE  5-3 

Gross  Margins  in  Supermarkets  by  Major  Product  Lines. 


Food  Town 

Super  Valu 

Product 

study  * 

study  f 

Meat 

16.9% 

21.3% 

Produce 

25.4 

30.8 

Frozen  foods 

22.2 

20.3 

Bakery 

18.0 

17.8 

Paper  products 

23.9 

23.4 

Health  and  beauty  aids 

27.7 

31.3 

Food  specialties 

24.9 

23.9 

Beer  and  wine 

26.3 

Toys 

29.5 

*  "The  Foodtown  Study,"  Progressive  Grocer,  XXXIV,  no.  1,  January,  1955, 
p.  43. 

f  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1958),  p. 
F-18. 

turn  from  20  to  22  per  cent  gross  margin.  Stores  incur  added  expense 
for  stocking  and  displaying  the  assortment  of  frozen  foods.  Per 
capita  use  of  paper  products  has  mounted,  and  these  products  gross 
from  23  to  24  per  cent  margin. 

3.  Third  is  the  fact  that  supermarkets  in  recent  years  have  adopted 

24  Milton  Alexander,  "Where  We  Stand  on  Non-food  Merchandising,"  Pro- 
gressive Grocer,  XXXI,  no.  10,  October,  1952,  p.  200. 


Buying  Operations  and  Margins  93 

merchandising  policies  in  line  with  consumer  desires  and  habits  that 
necessitate  more  diversified  inventories.  Merchandise  turnover, 
which  is  a  vital  factor  in  determining  retail  price,  has  decreased. 
General  price  policy  in  supers  has  been  for  the  fastest  movers,  usu- 
ally products  essential  to  the  health  and  well  being  of  the  family, 
to  carry  the  lowest  margins.  As  sales  movement  declines,  percentage 
of  margin  usually  increases.  This  realistic  pricing  philosophy  builds 
volume,  strengthens  consumer  confidence  in  the  store,  and  at  the 
same  time  produces  a  satisfactory  competitive  over-all  store  mar- 
gin.25 

4.  Fourth  is  a  tendency  to  increase  customer  services  and  com- 
fort—"trade  up"  the  supers.  This  trend  has  resulted  in  larger  ex- 
penses and,  in  turn,  higher  margins.26 

Comparison  of  Margins  with  Other  Retailers 

Although  these  four  pressures  have  tended  to  force  gross  margins 
upward,  supermarkets  still  operate  at  a  lower  over-all  markup  than 
the  chain  economy  stores  and  the  small  independent  grocers  of  the 
1920's.  In  comparison  with  other  types  of  retailers,  few  maintain 
such  low  markups  as  the  supermarket,  as  shown  by  the  statistics  in 
Table  5-4.  Department  and  variety  stores  have  both  maintained  mar- 
gins of  over  35  per  cent  or  about  double  that  for  the  supermarket. 
The  nature  of  the  products  sold,  competitive  conditions,  and  policies 
of  manufacturers,  wholesalers,  and  retailers  are  a  few  of  the  factors 
that  have  a  bearing  on  the  margins.  But  the  fact  that  the  super  could 
operate  on  such  a  narrow  margin  influenced  other  retailers.  Those 
who  handled  the  same  nonfood  products  easily  sold  in  supers  at- 
tempted to  improve  their  competitive  position. 

The  average  1957  margin  for  a  small,  combination  grocery  and 
meat  market  was  18.25  per  cent  of  sales.27  This  was  lower  than  the 

25  "The  Food  Town  Study,"  Progressive  Grocer,  XXXIV,  no.  1,  January,  1955, 
p.  43. 

26  Actually  margins  could  have  been  left  the  same  and  profits  reduced.  This 
has  not  been  the  case,  as  will  be  seen  in  the  next  section  on  expenses. 

27 Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1958),  p. 
F— 17. 


94  Supermarketing 

margin  for  its  counterpart  in  the  1920,s.  Supermarket  margins,  as 
shown  by  the  data  in  Table  4-2,  ranged  from  18.11  to  20.50  for  chain 
units.  Because  of  differences  in  products  handled  by  various  supers, 
no  attempt  can  be  made  to  compare  their  margins  with  those  for 


TABLE  5-4 

Gross  Margin  for  Various  Kinds  of 
Retail  Establishments  for  the  Year  1954. 

Type  of  store 

Gross  margin  as 
%  of  sales 

Department  store 
Drug  store 

Furniture  store  (large) 
Hardware  store 
Meat  market 
Supermarket 
Variety  store 

36.5  ■ 
33.2  6 
39.0  0 
29.5  * 
21.4  « 
18.8/ 
37.7* 

°  Controllers  Congress,  1954  Merchandise  and  Operating  Results  (New  York: 
National  Retail  Dry  Goods  Association,  1955),  p.  1. 

&  Lilly  Digest  (Indianapolis:  Eli  Lilly  &  Co.,  1955),  p.  21. 

c1954  Furniture  Operating  Experiences  (Chicago:  National  Retail  Furniture 
Association,  1955),  p.  5. 

d  "1954  Retail  Hardware  Survey,"  Hardware  Retailer,  June,  1955,  p.  77. 

eMeat  Markets — Operating  Results  in  1954  (New  York:  Dun  &  Bradstreet, 
Inc.,  1954),  p.  2. 

f  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1957),  p. 

F-15.  o 

9  "Harvard  Report  on  Variety  Chains,"  Chain  Store  Age,  Variety  Store  Man- 
agers Issue,  XXXI,  no.  8,  August,  1955,  p.  65. 

the  small  combination  market.  The  comparison  should  be  by  product 
classes.  For  staple  food  items,  supers  continue  to  be  the  price 
leaders. 

This  trend  of  rising  gross  margins  has  resulted  from  policies  of 
supers  endeavoring  to  furnish  goods  and  services  desired  by  the  con- 
sumer. However,  the  supermarket  managements  must  not  fail  to 
realize  that  they  have  an  Achilles  heel  in  rising  gross  margins  neces- 
sitated by  increased  expenses.  Since  1957  the  full-line  but  limited- 
brand  'Vest  pocket"  super  has  gained  popularity  in  the  Southeast, 


Buying  Operations  and  Margins  95 

Southwest,  and  in  some  areas  of  the  Pacific  Coast.28  These  stores, 
with  from  2,000  to  4,000  sq  ft  of  space,  sell  every  type  but  not  every 
size  or  brand  of  product  at  low  prices.  This  and  other  innovations  in 
retailing  must  be  watched  by  supermarket  management. 

Margins  by  Product  Lines 

While  the  over-all  gross  margin  of  a  supermarket  averages  about 
18  to  20  per  cent  of  the  sales  dollar,  individual  departments  and 
products  within  these  departments  have  gross  profit  percentages 
and  dollar  gross  margins  that  vary  widely  from  the  store  average. 
Furthermore,  sales  by  product  lines  and  the  resulting  dollar  margins 
are  not  equally  important.  For  example,  the  1957  Harvard  Study  of 
Food  Chains  disclosed  the  following  product-line  sales  of  the 
medium-sized  food  chains: 

ltem  %  total  sales 

Groceries 66.2 

Produce 9-9 

Meat 23.9 

In  turn,  these  same  food  chains  had  product-line,  gross-margin  per- 
centages as  follows: 

Groceries 17.4 

Produce 26.9 

Meat 20.8 

The  percentages  of  total-dollar  gross  margin  earned  by  product 
classes  for  these  same  stores  were: 

Groceries 61.3 

Produce 13.5 

Meat 25.0 

Therefore  all  three  product  classes  did  not  contribute  equally  to  the 
store  margin  of  18.9  per  cent.  For  example,  if  these  percentages  were 
applied  to  a  store  doing  $1,000,000  volume,  the  dollar  gross  margin 
for  the  entire  store  would  be  $189,379.  However,  produce  sales 

28  Facts  in  Grocery  Distribution,  op.  cit.,  p.  F-4. 


96  Supermarketing 

would  total  only  $99,000  but  would  return  $24,479  gross  margin. 
Thus,  while  produce  sales  were  only  9.9  per  cent  of  the  total  volume, 
they  returned  13.5  per  cent  of  the  store's  dollar  gross  profit. 

A  further  breakdown  of  margins  of  grocery  items  suggested  by 
Progressive  Grocer  in  its  widely  distributed  margin  card  include  the 
following: 

Margin  %  Item 

9  or  less  .     .     .     .     .  Butter,  coffee,  sugar 

10-15 Eggs,  cereals,  soup,  soap 

16-19 Dog  food,  flour  mixes,  syrup 

20-22 Catsup,  frozen  food,  canned  fruits 

23-25 Jelly,  olives,  paper  towels 

26-28 Pie  filling,  waxes,  brooms,  pectin 

29  and  over   ....  Drug  sundries,  napkins,  facial  tissue 

These  margin  percentages  illustrate  the  wide  variation  in  gross  profit 
among  different  products.  Gross  profit  percentage  is  a  function  of 
the  competitive  situation  in  the  respective  market  areas,  volume  and 
resulting  turnover  of  each  item,  handling  and  display  costs,  and  the 
nature  of  the  product.  A  super  generally  must  price  its  products  com- 
petitively, and  thus  it  is  limited  in  its  control  over  specific  product 
margins.  In  addition,  if  a  product  such  as  coffee  has  a  high  turnover 
and  sells  in  volume,  the  margin  percentage  may  be  small,  but  the 
total-dollar  gross  margin  may  be  large.  A  premium  margin  normally 
is  placed  on  products  that  are  bulky  and  difficult  to  display,  such 
as  brooms  and  paper  goods. 

Improvement  in  Supermarket  Margins 

Gross  margin  is  the  difference  between  the  selling  price  and  the 
cost  of  the  goods  sold.  Management  is  under  constant  pressure  to 
improve  store  margins  in  order  to  increase  the  profit  possibilities.  It 
can  do  this  by  holding  selling  prices  constant  and  reducing  cost  of 
sales,  raising  selling  prices  generally  and  holding  cost  of  sales  con- 
stant, raising  selling  prices  generally  and  lowering  cost  of  sales,  or 
concentrating  effort  on  selling  products  which  normally  have  the 
largest  gross  margin  percentages. 

Any  activity  on  the  part  of  management  that  can  reduce  the  cost 


Buying  Operations  and  Margins  97 

of  the  merchandise  which  the  super  sells  can  increase  the  gross 
margin.  That  is  why  scientific  purchasing  has  played  such  a  vital 
role  in  the  development  of  this  industry.  Astute  purchasing  is  the 
heart  of  a  super's  merchandising  strategy.  Management  also  must 
strive  to  keep  cost  of  sales  down  through  close  control  of  inventory 
in  order  to  prevent  losses  or  shrinkages  from  accruing.  Losses  that 
appear  in  inventory  increase  the  cost  of  goods  sold  during  that 
period  and  thus  reduce  the  dollar  margin.  Losses  occur  as  a  result 
of: 

1.  Failure  to  get  the  merchandise  that  was  purchased.  This  in- 
volves proper  inspection. 

2.  Excessive  discounts  offered  to  employees  on  merchandise 
bought  for  their  own  consumption. 

3.  Pilferage  on  the  part  of  customers,  personnel,  or  suppliers.  This 
can  vary  from  0.35  per  cent  to  0.50  per  cent  of  the  sales  dollar  and 
thus  increase  the  cost  of  sales  by  a  like  amount.29 

4.  Spoilage  or  shrinkage  of  merchandise,  particularly  in  produce 
and  meat  departments. 

The  competitive  situation  in  the  respective  trading  area  of  a  super 
has  a  bearing  on  prices  charged.  An  individual  store  normally  may 
find  it  difficult  to  raise  prices  above  competition  unless  the  store  is 
differentiated  in  some  manner.  But  the  merchandising  skill  of  the 
store  executives  can  augment  margins.  Special  promotions  or  sales 
can  be  used  more  effectively  to  draw  customers  who  buy  related 
merchandise  not  on  sale  and  which  carries  larger  margin  percent- 
ages. A  store  executive  may  be  able  to  merchandise  specific  products 
to  advantage  through  knowledge  of  local  factors  and  flexible  opera- 
tions. A  product  in  short  supply  in  the  market  may  be  raised  in  price 
and  return  a  higher  margin.  Merchandising  skills  must  be  developed 
and  employed  to  plan  operations  more  completely,  take  advantage 
of  special  events,  promote  seasonal  merchandise  sales  and  display 
merchandise  more  effectively. 

29  These  figures  were  obtained  from  a  letter  from  Mr.  G.  L.  Mattei,  District 
Manager,  William  J.  Burns  International  Detective  Agency,  to  the  Super  Market 
Institute  on  January  22,  1958. 


98  Supermarketing 

Managerial  ability  is  important  to  make  certain  that  selling  prices 
are  not  understated.  This  can  occur  if  checkers  undercharge  for 
merchandise  or  do  not  record  the  sale  of  every  item.  Improperly 
marked  merchandise  can  lower  margins.  It  is  vital  to  get  the  money 
due  the  super.  The  proper  combination  of  merchandising  and  man- 
agerial skills  on  the  part  of  the  store  executives,  coupled  with  skillful 
buying,  can  improve  the  gross  margin  in  a  super. 

SUMMARY 

Merchandise  "well  bought"  can  be  sold  at  a  profit.  This  is  a  cardinal 
rule  in  the  supermarket  industry  which  purchases  over  $20  billion  in 
merchandise  each  year.  The  term  "well  bought"  means  the  purchase  of 
merchandise  that  meets  the  needs  and  wants  of  the  customer  and  which 
can  be  sold  at  a  price  that  reflects  good  value. 

Trends  within  the  industry  toward  larger  stores  and  more  stores  under 
a  common  ownership,  coupled  with  the  development  of  group  purchasing 
(the  buying  committee),  have  given  the  industry  advantageous  bargain- 
ing power  with  suppliers.  Furthermore,  the  wide  use  of  the  buying  com- 
mittee has  resulted  in  a  more  unified  merchandising  program— greater 
coordination  of  buying,  selling,  advertising  and  promotion.  The  role  of 
the  buyer  has  changed.  Although  he  performs  executive  tasks,  he  must 
also  be  a  communication  expert,  taking  the  manufacturer's  message  to  the 
committee.  This  impersonal  buying  has  forced  food  manufacturers  to  re- 
vamp their  selling  programs. 

In  turn,  the  margins  in  the  supermarket  industry  have  tended  upward. 
This  has  been  brought  about  by  four  fundamental  forces  present  in  the 
industry.  There  has  been  a  tendency  during  and  since  the  postwar  era  to 
expand  into  nonfood  lines  that  earn  a  higher  markup  than  grocery  prod- 
ucts. Second  is  the  tendency  for  families  to  purchase  better  and  more 
convenient  kinds  of  food  products  that  carry  a  wider  margin.  Third,  super- 
markets have  adopted  merchandising  policies  in  line  with  consumer  de- 
sires and  habits  that  necessitate  more  diversified  inventories  to  be  handled. 
This  has  lowered  turnover  and  resulted  in  higher  margins.  Finally,  there 
has  been  a  tendency  to  increase  customer  services  and  comfort.  This  trend 
has  resulted  in  greater  expenses  and,  in  turn,  higher  margins.  Yet,  the 
supermarket  continues  to  afford  the  consumer  values  in  its  respective  area 
substantially  better  than  those  offered  by  other  forms  of  retailing. 


EXPENSES  AND  PROFITS 


INTRODUCTION 

The  preceding  chapter  examined  (1)  the  buying  practices  of 
supermarkets  and  (2)  the  principles  involved  in  the  establishment 
of  gross  margins.  The  purpose  of  this  section  is  to  continue  the  study 
of  the  principles  of  supermarketing  within  the  framework  of  an  op- 
erating statement.  Attention  in  this  chapter  is  focused  on  operating 
expense  and  net  profit  relationships. 

OPERATING  EXPENSES 

The  third  step  in  the  plan  to  identify  characteristics  of  super- 
market operation  that  set  it  apart  from  other  forms  of  retailing  is  to 
study  expense  relationships. 

At  the  outset,  reference  is  made  to  the  data  in  Tables  4-2  and  4-3, 
which  list  detailed  expenses  as  a  percentage  of  sales  for  supermarket 
food  chains  and  for  an  independent  supermart.  Other  expense  ratios 
can  be  found  in  Table  6-1  which  presents  operating  data  from  the 
annual  surveys  conducted  by  the  Super  Market  Institute  among  its 
members  for  the  years  1954  through  1958.  Akin  to  other  retailers, 
the  major  expense  items  of  supermarkets  are  for  store  payroll,  ad- 
ministrative salaries,  occupancy  or  real  estate,  advertising,  and  store 
supplies. 

Trends  in  Supermarket  Total  Operating  Expense 

Yearly  surveys  conducted  by  the  staff  of  Super  Market  Merchan- 
dising for  1947  through  1956  indicate  that  operating  expenses  as  a 
percentage  of  sales  were: 1 

1  The  statistics  for  the  years  1947  to  1950  are  from  the  yearly  surveys  pub- 
lished in  the  May  editions,  1948  through  1951,  respectively,  of  Super  Market 

99 


100 


Supermarketing 

Year 

%  sales 

1947 

14.8 

1948 

14.9 

1949 

13.9 

1950 

14.3 

1951 

15.4 

1952 

15.7 

1953 

16.1 

1954 

15.8 

1955 

16.1 

1956 

16.9 

These  data  are  comparable  with  the  total  expense  statistics  of  the 
Super  Market  Institute  figure  exchange  data  shown  in  Table  6-1. 
This  organization  reported  in  its  1958  study  that  total  operating  ex- 

TABLE  6-1  * 

Operating  Statistics  of  Selected  Super  Market  Institute 

Members  as  a  Percentage  of  Sales 

for  the  Years  1954  to  1958. 


1958  f 

J957 

1956 

1955 

1954 

Sales 

Cost  of  sales     .     .     . 

.     100.00 
.       81.88 

100.00 
81.89 

100.00 
82.06 

100.00 
82.24 

100.00 
82.63 

Gross  profit  .... 

.       18.12 

18.11 

17.94 

17.76 

17.37 

Expense 

Store  labor     .     .     . 
Advertising     .     .     . 
Store  supply  .     .     . 
Store  rent  and 

— 

6.87 
0.87 
0.88 

7.10 
1.00 
0.88 

7.08 
0.89 
0.80 

7.16 
0.90 
0.80 

real  estate    .     . 
Heat,  light,  power  . 
All  other  expenses    . 

— 

1.12 
0.50 
5.80 

1.07 
0.50 
5.41 

1.07 
0.48 
5.05 

1.01 
0.47 
4.38 

Total  expenses     . 
Net  profit  \      . 

.       16.19 

2.20 

16.04 
2.26 

15.96 
2.13 

15.37 
2.56 

14.72 
2.46 

*  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1959),  p. 
F-21. 

f  The  Super  Market  Industry  Speaks  (Chicago:  Super  Market  Institute, 
1959),  p.  17. 

X  These  statements  do  not  include  other  income  and  expense  items.  There- 
fore net  profit  cannot  be  added  to  total  expense  to  obtain  gross  margin. 

Merchandising.  Data  for  1951  through  1956  are  found  in  the  August  editions, 
1952  through  1957,  respectively,  of  the  same  magazine. 


Expenses  and  Profits  101 

penses  ranged  from  14.54  to  17.49  per  cent  of  sales  for  the  middle 
range  of  respondents  and  16.19  per  cent  for  the  typical  supermarket.2 

The  expense  rates  as  a  percentage  of  sales  for  certain  supermarket 
chains  for  1956  are  shown  in  Table  5-2.  These  rates  ranged  from  a 
low  of  13.77  for  Thriftimart,  Incorporated,  to  a  high  of  19.34  for 
Shopping  Bag  Food  Stores.  The  diversity  of  characteristics  of  stores 
within  the  industry,  including  the  method  of  operation  and  lines 
stressed,  had  a  direct  bearing  on  these  ratios. 

The  expense  rate  for  supers  in  the  postwar  period  was  consider- 
ably larger  than  that  for  supermarkets  in  the  late  1930's.  And  the 
expense  trend  each  year  has  continued  upward.  The  rise  is  attributed 
to  improved  customer  shopping  conveniences  and  services  and  to  a 
higher  percentage  of  sales  expended  for  salaries  and  wages.  It  was 
not  unusual  for  the  expense  rate  of  supers  in  the  1930's  to  average 
10  to  11  per  cent  of  sales.3  In  1941  the  entire  supermarket  operation 
of  the  A  &  P  worked  on  a  10.51  expense  ratio.4  However,  the  expense 
rate  for  supers  in  recent  years  has  still  been  lower  than  that  for  the 
grocery  stores  and  combination  markets,  including  the  A  &  P  econ- 
omy stores  of  the  early  1930's. 

Comparison  of  Total  Expense  with  Other  Retailers 

The  general  trend  of  total  expense  in  a  supermarket  has  shown 
consistent  increase  over  the  years.  Yet,  the  supermart  is  still  a  low 
cost  marketer  when  compared  to  other  types  of  retailers.  The  total 
expense  rate  of  the  supermarket  industry  compared  with  that  of  the 
variety  and  department  stores  is  substantially  lower;  in  fact,  it  is 
about  50  per  cent  less,  as  illustrated  by  statistics  in  Table  6-2.  Ex- 
penses vary  according  to  the  type  of  business,  lines  handled,  and 
operational  policies,  to  name  but  a  few  factors.  But  the  low  super- 
market rate  becomes  even  more  significant  when  nonfood  items  that 
are  stocked  by  similar  stores,  including  supers,  are  considered. 

2  The  middle-range  figures  are  the  values  at  the  one-quarter  and  three-quarter 
points  from  the  array  of  data  listed,  from  the  smallest  to  the  largest.  Extremes  in 
the  top  and  bottom  quarters  are  thus  omitted. 

3  United  States  v.  The  Great  Atlantic  and  Pacific  Tea  Company,  U.S.  Circuit 
Court  of  Appeals,  7th  District,  Docket  9221,  Records  and  Briefs,  Vol.  II,  p.  194. 

4  See  Table  8-7. 


102  Supermarketing 


TABLE  6-2 

Operating  Expenses  as  a  Percentage  of  Sales  for  Various 
Types  of  Retail  Stores  for  the  Year  1954. 


Expense 

Type  of  store 

%  of  sales 

Department  store 

33.50  » 

Drug  store 

27.80  & 

Furniture  store  (large) 

37.44« 

Hardware  store 

27.55  * 

Meat  market 

20.00  • 

Supermarket 

15.80  / 

Variety  store 

32.90  a 

°  Controllers  Congress,  1954  Merchandise  and  Operating  Results  (New  York: 
National  Retail  Dry  Goods  Association,  1955),  p.  1. 

b  Lilly  Digest  (Indianapolis:  Eli  Lilly  &  Co.,  1955),  p.  21. 

0 1954  Furniture  Operating  Experiences  (Chicago:  National  Retail  Furniture 
Association,  1955),  p.  5. 

d  "1954  Retail  Hardware  Survey,"  Hardware  Retailer,  June,  1955,  p.  77. 

e  Meat  Markets — Operating  Results  in  1954  (New  York:  Dun  &  Bradstreet, 
Inc.,  1954),  p.  2. 

f  Facts  in  Food  Distribution  (New  York:  Progressive  Grocer,  1955),  p.  F-17. 

o  "Harvard  Report  on  Variety  Chains,"  Chain  Store  Age,  Variety  Store  Man- 
agers Issue,  XXXI,  no.  8,  August,  1955,  p.  52. 

Comparison  of  Major  Expense  Items  by  Retailers 

Data  in  Table  6-3  present  major  expense  breakdowns  for  certain 
types  of  retail  stores,  including  supermarkets.  The  four  most  sig- 
nificant expense  items  confronting  retailers,  as  shown  by  the  sta- 
tistics in  Table  6-3  are  (1)  employees'  salaries,  (2)  owners'  or  ad- 
ministrative salaries,  (3)  occupancy,  and  (4)  advertising,  publicity, 
and  promotion.  In  almost  every  instance  the  supermarket  was  able, 
more  than  any  other  type  of  retailer  shown,  to  operate  at  a  consider- 
ably lower  expense  rate  as  a  percentage  of  sales. 

Owner  or  administrative  expense  in  supermarkets  was  1.92  per 
cent  of  sales  in  1954  compared  with  7.7  per  cent  in  drugstores,  5.8 
per  cent  in  variety  stores,  and  7.8  per  cent  in  department  stores  for 
the  year  1954.  Simply,  supermarkets  are  geared  for  large-volume  op- 
eration, and  they  require  a  small  percentage  of  the  sales  dollar  for 


Expenses  and  Profits  103 

supervision.  Operations  are  routinized,  sales  are  largely  on  a  self- 
service  cash  basis,  and  a  high  degree  of  division  of  labor  is  obtained. 
Efficiencies  through  central  management  in  chain  supermarts  have 
been  attained.  Management  at  the  store  level  in  chains  generally  is 
paid  a  fixed  salary  plus  a  small  percentage  of  sales  above  a  set  goal. 
Local  management  emphasis  is  on  volume. 

Similarly,  self-service,  division  of  labor,  and  large-volume  opera- 
tion have  kept  employees'  salaries  as  a  percentage  of  sales  smaller 
than  those  paid  by  most  types  of  retailers,  except  the  small  stores 
where  the  owner  does  most  of  the  work  personally.  In  the  larger 


TABLE  6-3 

Major 

Operating  Expenses  as 

a  Percentage  of  Sales  for 

Certain  Types  of  Retail  Outlets. 

Meat 

market  t 

(complete 

Depart- 

Hard- 

or partial 

Super- 

Drug 

ment 

Variety 

ware 

self- 

Expense 

market  a 

store  b 

store  c 

store  d 

store  e 

service) 

Administration 

0.78  to  1.26 

7.70 

18.40  o 

17.50  o 

17.75  o 

6.40 

Employees' 

salaries 

5.24  to  5.89 

10.60 

— 

— 

— 

6.40 

Occupancy 

0.82  to  1.01 

2.40 

6.10 

5.90 

2.45 

2.70 

Advertising, 

promotion, 

publicity 

2.93  to  3.07  ^ 

— 

4.30 

0.40 

1.40 

0.70 

a Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1958),  p. 
F-18. 

»  Lilly  Digest  (Indianapolis:  Eli  Lilly  &  Co.,  1954),  p.  62. 

c  Controllers  Congress,  Merchandising  and  Operating  Results  (New  York: 
National  Retail  Dry  Goods  Association,  1955),  p.  2. 

d  "Harvard  Report  on  Variety  Stores,"  Chain  Store  Age,  Variety  Store  Man- 
agers Edition,  August,  1955,  p.  62. 

e  "1954  Retail  Hardware  Survey,"  Hardware  Retailer,  June,  1955,  p.  77. 

f  Meat  Markets — Operating  Results  in  1954  (New  York:  Dun  &  Bradstreet, 
Inc.,  1954). 

o  Administration  and  employees'  salaries  are  included  under  one  classification. 

ft  This  includes  trading  stamps  of  approximately  2  per  cent  of  sales.  Advertis- 
ing expense  alone  for  the  1954  typical  super  was  reported  at  0.87  to  1.02  per 
cent  of  sales.  Only  36  per  cent  of  the  supers  offer  trading  stamps. 


104  Supermarketing 

super  operations,  personnel  departments  have  been  established  to 
hire,  train,  set  job  descriptions,  and  determine  promotion,  transfer, 
and  layoff  policies.  Most  operations  especially  train  the  check-out 
girls  through  whom  contact  with  the  public  is  maintained.  Not  only 
are  trained  check-out  girls  more  efficient  from  the  use  of  equipment 
and  error  standpoints,  but  the  consumer  receives  faster  service. 
Variety  and  drugstores  had  employees'  salaries  expressed  as  a  per- 
centage of  sales  of  11  and  10.6  per  cent,  respectively,  for  1954;  super- 
markets have  averaged  between  5  and  6  per  cent.  With  only  55  per 
cent  of  department  store  employees  active  in  selling,  their  compen- 
sation alone  in  1954  was  7  per  cent  of  sales.5 

The  low  percentage  expenditure  for  salaries  and  wages  has  been 
aided  further  by  simplifying  and  eliminating  work.  Manufacturers 
perform  some  of  the  retail  functions.  Supermarkets  are  one  of  the 
few  retailers  that  require  manufacturers  to  do  this.  Baby  food  man- 
ufacturers and  biscuit  bakers,  to  name  but  two,  have  taken  on  such 
functions  as  ordering,  stocking  shelves,  keeping  merchandise  clean, 
and  arranging  displays.  Unions  oppose  this  practice. 

The  policy  of  self-service  obviously  requires  the  customer  to  take 
over  some  of  the  functions  of  the  clerk.  Not  only  has  this  practice 
been  successful  in  grocery  operation  (by  definition,  the  grocery  di- 
vision of  a  supermarket  must  be  self-service),  but  the  principle  has 
spread  to  other  departments  within  the  supermarket.  In  1950  a  study 
by  the  research  staff  of  the  Super  Market  Institute  reported  8  per 
cent  of  its  members  operated  completely  self-service  stores.6  By 
1958,  57  per  cent  of  all  supermarkets  were  on  a  completely  self- 
service  basis  in  all  major  departments.7  The  meat  department  is  now 
fully  self-service  in  88  per  cent  of  the  supermarkets,  with  most  of 
the  remainder  semi-self-service.  Only  2  per  cent  of  the  meat  depart- 
ments are  still  operated  on  a  complete  service  basis.  The  produce 
department  is  the  principal  division  not  operated  on  a  full  self- 
service  basis. 

5  Controllers  Congress,  1954  Merchandise  and  Operating  Results  (New  York: 
National  Retail  Dry  Goods  Association,  1955),  p.  21. 

6  The  Super  Market  Industry  Speaks  (Chicago:  Super  Market  Institute, 
1951),  p.  17. 

7  Ibid.,  1959,  Part  II,  p.  9. 


Expenses  and  Profits  105 

Occupancy  or  real  estate  cost  is  the  third  significant  expense  item 
faced  by  retailers.  This  cost  as  a  percentage  of  sales  also  favors  the 
supermarket  type  of  operation.  Data  in  Table  6-3  indicate  that  the 
typical  supermarket  expended  0.82  to  1.02  cents  out  of  every  sales 
dollar  for  occupancy  as  compared  with  a  minimum  of  2.4  cents  for 
all  other  types  of  stores.  This  does  not  mean  necessarily  that  super- 
markets obtain  cheaper  dollar  rental.  In  some  cases  the  super  has 
been  given  a  rental  advantage  where  the  mart  is  the  key  store  in  a 
shopping  center.  However,  the  low  percentage  of  the  sales  dollar 
expended  for  rent  primarily  is  the  result  of  their  policy  to  exploit 
customer  traffic  to  the  fullest  so  that  increased  volume  can  reduce 
rental  expense  as  a  percentage  of  sales. 

Advertising,  publicity,  and  promotion  for  a  typical  supermarket 
shown  by  the  data  in  Table  6-3  ranged  from  2.93  to  3.07  per  cent  of 
the  sales  dollar.  Of  this,  advertising  itself  ranged  from  0.87  to  1.04 
per  cent.  Studies  since  1950  made  by  the  Super  Market  Institute 
indicate  that  slightly  under  1  per  cent  of  every  sales  dollar  is  spent 
for  advertising.  Expenditures  by  media  are  shown  by  the  figures  in 
Table  6-4.  The  over-all  expenditure  of  less  than  1  per  cent  of  the 

TABLE  6-4  * 

Advertising  Expenditures  by  Media  for  the  Supermarket 

Industry  as  a  Percentage  of  Total  Dollar 

Ad  Expenditures  for  the  Year  1956. 


%  of  total 

Medium 

expenditure 

Newspaper 

67.0 

General  promotion  (door  prizes, 

civic  drives,  etc.) 

7.5 

Circulars 

6.9 

Television 

6.6 

Radio 

4.9 

Display  posters 

3.4 

Direct  mail 

3.1 

Magazines 

0.6 

Total 

100.0 

*  "Where  Advertising  Dollars  Went  in  1956,"  Super  Market  Merchandising, 
XXII,  no.  11,  November,  1957,  p.  68. 


106  Supermarketing 

sales  dollar  is  primarily  for  newspaper  ads,  which  commanded  67 
per  cent  of  the  ad  funds.  Supermarts  compare  favorably  with  de- 
partment stores,  which  spend  about  2.6  per  cent  of  the  sales  dollar 
for  newspaper  costs  alone.8 

However,  this  figure  of  slightly  less  than  1  per  cent  of  the  sales 
dollar  does  not  give  a  true  picture  of  supermarket  advertising  vol- 
ume because  of  the  cooperative  advertising  deals  offered  supers, 
particularly  the  large  chains.  Food  manufacturers  have  agreed  to 
sponsor  ads  and  have  paid  the  cooperating  store  for  its  portion,  fre- 
quently at  the  national  newspaper  rate.  The  local  store  can  arrange 
for  the  ad  and  pay  the  media  at  the  local  rate.  Thus  supers  have  not 
only  passed  on  to  the  manufacturer  part  of  the  advertising  expense 
but  in  addition  have  found  a  source  of  added  income  as  a  result  of 
the  difference  between  the  national  and  local  media  rates.  On  the 
average,  the  local  rate  is  50  per  cent  less  than  the  national  rate  on 
weekday  newspaper  ads.9  Supermarkets  feel  they  are  entitled  to  this 
allowance  inasmuch  as  they  perform  some  of  the  advertising  func- 
tion. Manufacturers'  cooperative  advertising  and  advertising  allow- 
ances come  under  the  Robinson-Patman  Act,  which  holds  in  sub- 
stance that  whatever  allowances  a  manufacturer  offers  to  one  dealer 
must  be  proportionally  available  to  all  other  comparable  dealers  of 
that  product  in  the  same  competitive  market  and  must  be  a  bona  fide 
allowance  for  advertising  and  not  merely  an  additional  trade  dis- 
count. Cooperative  advertising  with  all  its  implications  has  created 
vast  problems  among  food  manufacturers,  supermarkets,  and  pub- 
lishers. 

Trading  stamps  have  become  the  largest  promotion  item  in  the 
supermarket  industry.  While  not  all  the  stores  issue  stamps,  this 
expenditure  in  a  typical  super  averages  slightly  above  2  per  cent 
of  the  sales  dollar.  Other  forms  of  promotion,  publicity,  and  adver- 
tising are  practiced  by  nonstamp  stores;  some  have  contended  they 
sell  for  less  than  stamp  stores. 

8  Controllers  Congress,  1954  Merchandise  and  Operating  Results,  op.  cit., 
p.  2. 

9  Otto  Kleppner,  Advertising  Procedure  (Englewood  Cliffs,  N.  J.:  Prentice- 
Hall,  Inc.,  1950),  p.  297. 


Expenses  and  Profits  107 

Governmental  agencies,  universities,  and  business  have  endeav- 
ored to  study  this  nebulous  concept  of  trading  stamp  impact  on 
margins,  prices,  and  restraint  of  trade.  Factors  for  successful  use 
of  stamps  have  been  discussed  before.10  No  clear-cut  results  are 
available.  Some  supers  have  found  the  needed  volume  to  use  this 
tool  successfully  and  have  spread  fixed  and  semifixed  costs  over 
larger  sales.  In  addition,  some  stamp  users  also  shifted  from  other 
kinds  of  advertising  or  promotional  effort.  This  cyclical  promotion 
tool  appears  to  have  passed  its  zenith  at  this  time,  however,  with  a 
drop  in  its  use  reported  for  the  second  consecutive  year.  About  35 
per  cent  of  the  supers  used  stamps  in  1958  according  to  Progressive 
Grocer.  The  failure  of  supers  to  attain  needed  volume  increase  ap- 
parently was  a  major  factor  in  the  end  of  this  boom.  Stamp-giving 
supers  have  made  no  volume  headway  at  the  expense  of  the  non- 
stamp  supermarkets  in  the  past  three  years,  as  shown  by  the  data 
in  Table  6-5.  The  movement  could  be  revived  if  one  or  several  of 
the  large  chains  adopted  their  use. 

TABLE  6-5  * 
How  Stamps  Affect  Supermarket  Sales. 


Average  % 

Average  % 

sales  gain  in  stores 

sales  gain  in  stores 

Years 

giving  stamps 

not  giving  stamps 

1954  vs.  1953 

18 

12 

1955  vs.  1954 

25 

12 

1956  vs.  1955 

13 

14 

1957  vs.  1956 

14 

14 

1958  vs.  1957 

10 

12 

*  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1959),  p. 
F-ll. 

Functional  Expense  Analysis 

Diversity  exists  in  the  operating  statistics  of  member  stores  of  the 
supermarket  industry  owing  to  size  of  stores,  size  of  concerns,  mer- 
chandise handled,  location,  method  of  operation,  and  merchandising 

10  The  use  of  trading  stamps  was  discussed  in  Chapter  4. 


108  Supermarketing 

policies.  Still,  operating  data  from  surveys  and  studies  made  by  the 
four  major  statistical  sources  in  this  industry— Super  Market  Insti- 
tue  Figure  Exchange,  Super  Market  Merchandising,  Progressive 
Grocer,  and  the  Harvard  Study  of  Food  Chains— are  generally  in 
accord  with  each  other.  In  the  postwar  period,  total  operating  ex- 
penses have  been  on  the  increase  in  the  supermarket  industry. 

It  is  imperative  to  know  in  what  areas  and  for  what  reasons  ex- 
penses are  increasing.  This  can  be  ascertained  by  two  basic  types 
of  distribution  cost  analyses.  One  is  the  familiar  examination  of  op- 
erating statements,  in  which  expenses  are  listed  and  then  analyzed 
by  the  nature  of  cost  items  or  the  object  of  expenditure.  Reference  is 
made  to  the  operating  statistics  of  selected  food  chains  shown  in 
Table  4-2.  Expenses  expressed  as  a  percentage  of  sales  are  itemized 
by  the  nature  of  the  cost  such  as  payroll,  real  estate,  and  supplies. 
Changes  in  specific  items  over  the  years  can  be  detected.  For  ex- 
ample, data  in  Table  4-2  indicate  that  payroll,  real  estate  costs,  fix- 
ture and  equipment  costs,  and  advertising  expenses  in  recent  years 
have  been  taking  a  larger  share  of  the  sales  dollar. 

These  increases  in  expenses  could  be  attributed  to  added  func- 
tions or  activities  assumed  by  the  supermarket  chains.  Therefore  a 
second  type  of  distribution  cost  study  was  undertaken  in  the  Har- 
vard Report,  namely,  an  analysis  of  functional  operations  per- 
formed. In  the  department  store  field,  the  Controllers'  Congress  of 
the  National  Retail  Dry  Goods  Association  has  set  up  five  major 
functional  divisions  of  expense:  administration,  occupancy,  public- 
ity, buying,  and  selling  and  delivery.  The  classification  set  forth  in 
the  Harvard  Study  of  Food  Chains  includes  the  store  or  selling  func- 
tion, warehousing  or  storage  function,  transportation,  and  adminis- 
tration and  general  expense.  These  functions  are  of  importance  for 
food  chains  faced  with  store,  warehouse,  and  transportation  prob- 
lems. An  individual  super  may  not  find  this  breakdown  of  value. 

Changes  in  these  functions  over  the  years  can  be  detected  by  a 
study  of  the  data  in  Table  6-6.  A  breakdown  of  these  classifications 
by  the  specific  expense  items  for  the  year  1958  is  shown  by  the  sta- 


Expenses  and  Profits  109 

tistics  in  Table  6-7.  Food  chains  have  kept  their  storage,  transporta- 
tion, and  general  and  administrative  costs  in  line  from  1950  to  1958. 
In  fact,  efficiencies  in  the  transportation  function  are  shown  by  the 
statistics,  with  transportation  costs  dropping  slightly  almost  yearly 
from  1.07  cents  out  of  the  sales  dollar  in  1950  to  0.91  cents  in  1958. 
Lower  transportation  costs  are  accounted  for  by  fewer  and  larger 
stores  better  located  geographically.  Warehousing  costs  have  been 
aided  by  better  handling,  modern  equipment,  new  buildings,  and 
supervision.  The  larger  sales  over  which  to  spread  overhead  have 
benefited  the  ratios  of  general  and  administration  expenses. 

It  is  in  conjunction  with  the  stores,  the  selling  function,  that  ex- 
penses have  mounted.  Store  expense  rose  from  10.85  per  cent  of 
the  sales  dollar  in  1950  to  13.58  per  cent  in  1958,  as  shown  by  the 
data  in  Table  6-6. 

In  turn,  the  specific  store  expenses  that  principally  have  accounted 
for  this  increase  were  store  payroll,  real  estate  costs  or  occupancy, 
equipment  costs,  advertising,  and  supplies.  Payrolls  have  increased 
faster  than  sales.  This  results  from  higher  hourly  wages,  primarily 
for  the  same  type  of  work,  in  line  with  the  industrial  wage-rate  pat- 
tern. It  does  not  appear  as  though  die  industry  has  added  a  different 
quality  of  labor  performing  new  and  specialized  services  which  re- 
quire a  boost  in  wages  per  hour;  for  example,  in  areas  such  as  pre- 
packing  meat.  Real  estate  costs  as  a  percentage  of  sales  have  risen 
as  a  result  of  higher  store  construction  costs,  mounting  interest  rates, 
increased  real  estate  taxes,  more  elaborate  stores,  larger  parking  lots, 
and  higher  land  costs.  Even  when  a  super  does  not  own  its  own 
buildings,  it  faces  increased  rental  charges  for  new  locations  inas- 
much as  the  owner  passes  on  increased  costs.  Similarly,  new  equip- 
ment not  only  tends  to  make  older  fixtures  obsolete  but  costs  more 
than  the  item  replaced  so  that  depreciation  charges  are  higher.  The 
sharp  increase  of  advertising  expenses  is  attributed  primarily  to 
certain  respondents  of  the  survey  adopting  trading  stamps  in  this 
period.  Other  factors  that  have  led  to  increased  advertising  costs  are 
higher  space  rates,  increased  use  of  radio  and  TV  time,  and  larger 


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i>  cq" 


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o 

a 

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Expenses  and  Profits  111 


TABLE  6-7  * 

Itemized  Expenses  Classified  by  Functions  for  Selected  Food 
Chains  as  a  Percentage  of  Sales  for  the  Year  1958. 

Adminis- 
Trans-         trative  and 
Item  Store  Warehouse       portation  general 


Payroll 

6.86 

0.54 

0.21 

1.41 

Real  estate  cost 

1.27 

0.16 

0.01 

0.06 

Equipment  expense 
Utilities 

1.10 
0.54 

0.09 
0.04 

0.16 

0.11 
0.01 

Supplies 
Advertising 
Travel 
Insurance 

0.91 
2.39 
0.01 
0.16 

0.01 
0.02 

0.05 

0.09 

0.09 
0.03 

Taxes 

Services  purchased 

Miscellaneous 

0.37 
0.32 

0.07 
0.04 

0.02 
0.16 
0.01 

0.05 
0.26 

Total 

13.93 

0.97 

0.62 

2.11 

*  Wilbur  B.  England,  Operating  Results  of  Food  Chains  in  1958  (Cambridge, 
Mass.:  Harvard  Business  School,  Bulletin  No.  156,  1959),  p.  20. 

promotional  costs  involved  in  the  introduction  of  new  stores.  Fur- 
thermore, nonstamp  users  have  intensified  their  promotional  activi- 
ties to  retain  their  respective  market  shares. 

Increased  costs  of  supplies  have  resulted  from  higher  paper  costs, 
changes  in  store  packaging  policies,  and  wider  use  of  office  supplies 
such  as  punch  cards.  As  a  result,  supermarket  food  chains  have  been 
forced  to  increase  gross  margins;  but  this  increase  has  not  been  suf- 
ficient to  offset  higher  costs,  with  the  result  that  net  operating  profit 
before  taxes  has  tended  to  decrease  for  these  chains. 

Although  these  results  are  for  food  chains,  similar  results  can  be 
assumed  for  smaller  concerns  and  independent  supermarkets  which 
face  the  same  slowly  rising  costs  of  doing  business.  Yearly  surveys 
conducted  by  the  Super  Market  Institute  indicate  that  the  majority 
of  members  report  encountering  continually  higher  costs  over  the 
past  decade. 

A  third  type  of  distribution  cost  study,  namely  the  manner  in 


112  Supermarketing 

which  the  distribution  effort  is  applied,  is  considered  in  the  next 
section  under  expense  control.  This  involves  expense  studies  of 
product  lines,  customers,  or  other  segments  of  the  business  and  is 
exemplified  by  a  study  to  determine  net  operating  profit  for  the 
dairy  department. 

Expense  Control 

The  supermarket  industry  has  been  faced  almost  since  its  incep- 
tion with  gradually  rising  costs  of  operation.  Concomitant  with  the 
rise  in  costs  has  been  added  services  furnished  and  activities  as- 
sumed by  this  industry.  However,  in  a  narrow  profit-margin  field 
such  as  this,  the  trend  could  prove  to  be  especially  dangerous  if  in- 
creased costs  resulted  from  services  not  desired  or  if  no  improvement 
in  services  were  offered.  In  time  the  supermarket  conceivably  could 
lose  its  competitive  position  or  see  its  profits  erode  if  consumers  be- 
lieved the  value  added  to  the  goods  by  the  supers  was  not  worth 
the  prices  charged.  Marketing  is  dynamic  in  nature;  nothing  is  so 
certain  as  change.  Therefore  control  of  operating  expenses  is  vital. 

The  wide  diversity  among  industry  members  makes  it  difficult  to 
generalize  as  to  policies  adopted  to  gain  effective  control.  However, 
the  following  practices  have  been  instituted  to  some  degree  by  mem- 
bers of  the  industry  in  an  effort  to  keep  expenses  under  control. 

Expense  budgeting,  A  budget  is  a  plan  of  expected  future  oper- 
ations. A  complete  budget  should  include  anticipated  sales,  margins, 
expenses,  and  profits.  It  should  serve  as  a  guide  or  a  control  mech- 
anism for  management.  A  budget  is  not  only  a  tool  for  large  organi- 
zations but  also  a  useful  device  for  the  small  concern.  The  activity 
of  preparing  a  budget  is  at  least  as  important  as  the  budget  docu- 
ment that  results  because  the  activity  itself  forces  formalized  plan- 
ning. This  may  be  even  more  significant  for  the  smaller  concern, 
which  is  often  less  likely  than  a  large  organization  to  formalize  its 
plans.  An  example  of  the  budget  program  of  one  chain  is  shown 
below.  This  program  also  can  be  adopted  with  some  modification 
by  the  smaller  concern. 

In  the  short  run,  at  the  most  a  year,  an  expense  budget  can  serve 


Expenses  and  Profits  113 

as  a  valuable  tool  to  supermarket  management.  It  can  point  out  dis- 
crepancies between  actual  and  anticipated  results,  illustrate  the 
need  for  adequate  records,  and  show  the  information  that  must  be 

Outline  of  Budgeting  Procedure  * 
Step  1:  Data  to  be  furnished  to  the  divisions. 

DATA  SOURCE 

a.  Last  year's  experience  for  period  to 

be  covered  Accounting  department 

h.  Over-all  tonnage  goals  for  existing 

stores  General  manager 

c.  Store    expansion    and    renovation 

plans  including  target  dates  General  manager 

d.  Commodity  price  forecast  Market  research  department 

Step  2:  Preparation  of  divisional  budgets. 

a.  Each  division  head  shall  submit  to  the  chief  budget  officer  budget 
figures  broken  down  by  department  and  by  account  classifications  as 
listed  on  a  standard  budget  form.  An  appropriate  text  explaining  the 
bases  for  the  budget  projection  is  to  accompany  the  form  when  sub- 
mitted. The  budget  figures,  for  the  present,  shall  be  on  a  quarterly 
basis.  Sales,  gross  profit,  salaries,  and  wages  shall  be  further  broken 
down  by  four-week  periods. 

b.  The  chief  budget  officer  shall  review  the  divisional  budgets,  con- 
solidate them  into  an  over-all  company  budget,  and  submit  it  with 
adequate  explanatory  text  to  the  general  manager. 

Step  3:  Approval  of  budget  by  general  manager. 

a.  The  general  manager  will  review  the  budget  and  text  and  will  indi- 
cate such  modification  of  plans  as  he  deems  advisable. 

b.  The  approved  budget  shall  be  presented  to  the  division  heads  at  a 
special  meeting  chairmanned  by  the  general  manager. 

Step  4:  Evaluation  of  results  versus  plans. 

a.  Each  division  head  shall  prepare  and  submit  to  the  chief  budget 
officer  a  review  and  evaluation  of  the  division's  results  versus  plans 
on  a  four- week  and  quarterly  basis. 

b.  The  chief  budget  officer  shall  prepare  a  consolidated  review  and 
submit  it  to  the  general  manager,  who  after  studying  it,  will  indicate 

*  Lloyd  B.  Tarlin,  "How  a  Super  Market  Chain  Started  Budgeting,"  Super 
Market  Merchandising,  XXI,  no.  7,  July,  1955,  p.  65. 


114  Supermarketing 

what  adjustments  and  action  are  to  be  taken  to  achieve  the  desired 
goals.  The  general  manager  will  choose  the  time  and  means  for  con- 
veying his  views  to  the  division  heads. 

readily  available  to  make  merchandising  decisions.  It  can  make  store 
managers  on  the  firing  line  cost-conscious.  It  can  aid  in  the  move- 
ment toward  decentralization  of  management  by  illustrating  the 
need  for  profits  as  well  as  volume.  While  the  supermarket  is  geared 
to  volume  operation,  top  management  does  not  appear  to  have  en- 
trusted sufficient  responsibility  to  store  managers. 

Establishment  of  standards.  More  and  more  the  management  of 
a  super  needs  guide  posts  by  which  to  judge  marketing  efficiency. 
Some  of  the  standards  already  developed  include: 

Sales  per  square  foot  of  selling  space 

Tons  of  merchandise  handled  in  warehouse  operation  per  man- 
hour 
Sales  per  employee 

Transactions  handled  per  check-out  stand  per  hour 
Labor  turnover 

Analysis  of  sales  per  day  of  week  and  per  hour  of  the  day 
Average  sale  per  customer 
Expense  per  linear  foot  of  display  space 
Itemized  expenses  expressed  as  a  percentage  of  sales 
Cost  of  handling  various  product  lines 
Sales  velocity  by  item 
Profit  per  item 

For  example,  various  company  and  industry  standards  are  published 
in  trade  magazines  and  by  the  trade  association  Super  Market  In- 
stitute. A  survey  of  the  industry  in  1957  revealed  that  the  average 
sale  per  customer  was  $4.85  and  average  weekly  sales  per  square 
foot  of  selling  area  were  $3.00.n  A  study  of  warehouse  costs  dis- 
closed that  from  1947  to  1956,  tons  of  merchandise  handled  per 

11  "Super  Market  Institute  Mid- Year  Gives  Hard  Facts  on  Markets,"  Super 
Market  Merchandising,  XXII,  no.  1,  January,  1957,  p.  101. 


Expenses  and  Profits  115 

man-hour  rose  from  1.06  to  1.87  tons.12  In  the  1958  study  of  opera- 
tions conducted  by  the  Super  Market  Institute,  it  was  disclosed  that 
sales  per  full-time  employee  equivalent  averaged  $41,200,  or  4  per 
cent  higher  than  1957. 13  This  figure  is  based  on  all  employees  in  a 
company  as  well  as  the  assumption  that  two  part-time  employees  are 
equivalent  to  one  full-time  worker.  Sales  per  man-hour  were  $22.97, 
compared  with  $21.66  a  year  earlier.  Typical  sales  per  square  foot 
of  selling  area  were  $3.71  a  week  compared  with  $3.77  in  1957. 

Akin  to  the  setting  of  standards  is  the  problem  of  effective  use  of 
labor,  the  major  expense  item.  Concerns  have  made  job  analyses,  set 
up  job  descriptions,  and  developed  division  of  labor  to  a  high  de- 
gree. Efforts  have  been  made  to  reduce  employee  turnover. 

Fixed  cost-volume  relationship.  From  its  inception  the  super- 
market has  been  geared  to  volume  operation.  Store  managers  have 
been  rewarded  by  salary  incentives  for  developing  volume,  with  the 
usual  arrangement  being  a  fixed  salary  plus  a  percentage  of  sales 
above  a  predetermined  amount.  Large  volume  has  been  its  basic 
tenet  so  that  the  multitude  of  fixed  costs  which  are  present  can  be 
spread  over  a  more  substantial  dollar  sales.  The  fixed  costs  are  not 
reduced  dollarwise,  but  when  expressed  as  a  percentage  of  a  larger 
sales  volume,  they  appear  as  a  lower  ratio  and  of  lesser  importance. 
The  whole  concept  of  profitable  use  of  trading  stamps  as  a  promo- 
tional tool  was  suited  for  supers  because  it  was  predicated  on  in- 
creased volume  so  that  fixed  costs  such  as  rent,  insurance,  fuel,  de- 
preciation, telephone,  and  other  utilities  could  be  spread  over  a 
larger  volume.  Simply,  a  super  faced  with  a  contractual  rental  obli- 
gation of  $10,000  per  year  while  transacting  a  $1,000,000  volume  can 
reduce  its  rental  as  a  percentage  of  sales  from  1  per  cent  to  Vz  per 
cent  if  sales  can  be  doubled.  However,  as  vital  as  this  principle  is, 
emphasis  also  should  be  placed  on  more  responsibility  at  the  store 
level  for  expense  control.  This  necessitates  higher  caliber,  better 
educated,  and  more  skilfully  trained  managers. 

12  "How  to  Fight  Costs  and  Win,"  Super  Market  Merchandising,  XXIII,  no. 
4,  April,  1958,  p.  64. 

13  Super  Market  Industry  Speaks,  op.  cit.,  1959,  p.  17. 


116  Supermarketing 

Cost  reduction.  In  supermarkets,  reduction  of  expenses  has  been 
centered  in  six  major  areas.  These  include  labor,  warehouse  and 
transportation,  general  operations,  store  department  operations,  back 
room,  and  construction  maintenance.  These  divisions  are  more  suit- 
able for  expense  analysis  of  both  large  and  small  supermarket  con- 
cerns than  are  the  functional  divisions  set  forth  by  the  Harvard 
Study  of  Food  Chains.  Store  operators  who  desire  a  comprehensive 
check  list  of  119  ways  to  reduce  costs  are  referred  to  Appendix  A. 

Labor  is  the  major  expense  item  in  a  retail  store.  All  executives 
in  the  firm  must  be  in  favor  of  a  sound  personnel  program  in  order 
to  obtain  the  greatest  productivity  from  the  employees.  Every  super- 
visory person  must  be  sold  on  the  idea  of  labor  performance.  Care 
must  be  taken  in  the  selection  of  workers.  Employees  should  be 
trained  for  their  respective  tasks.  If  management  expects  to  obtain 
the  superior  profits  of  effective  merchandising,  then  store  managers 
and  key  personnel  must  be  trained  to  be  merchandisers.  Whatever 
is  expected  of  the  workers  should  be  transmitted  in  the  form  of  work 
schedules,  which  should  include  a  man-hour  program  and  the  pay- 
roll percentage  of  sales  of  each  department.  This  is  the  result  of  job 
analysis.  The  desired  goals  of  productivity  should  be  set  forth.  Every 
effort  should  be  expended  to  maintain  interest  and  show  the  progress 
being  made.  The  employees  should  be  made  part  of  a  team  effort. 
Rewards  should  be  commensurate  with  performance. 

The  original  premises  of  self-service  in  supermarket  operation 
substantially  reduced  labor  expense.  It  brought  the  customer  "into 
the  act"  by  taking  over  some  of  the  functions  of  the  clerk.  Since  then, 
self-service  has  spread  to  most  departments  of  the  super.  Another 
factor  that  reduced  labor  expense  was  the  requirement  that  manu- 
facturers perform  some  of  the  retail  functions  such  as  ordering, 
stocking  shelves,  keeping  merchandise  clean,  and  arranging  displays. 
Finally,  supers  have  passed  on  to  the  customer  some  of  the  carry- 
out  and  delivery  activities.  For  example,  in  many  areas  customers 
can  cart  their  purchases  home  free  or  pay  extra  to  have  them  de- 
livered by  an  external  delivery  concern.  In  either  instance,  no  entry 
appears  in  the  expense  records  of  the  supermarket.  The  decision 
rests  with  the  customer  as  to  whether  it  is  to  be  a  cost  to  the  con- 


Expenses  and  Profits  H7 

sumer.  In  a  department  store,  however,  delivery  appears  in  the  store 
records  as  a  cost. 

Warehouse  and  transportation  costs  have  been  subject  to  intensive 
study  to  determine  optimum  size  and  layout  of  warehouses,  order- 
handling  systems,  routing,  and  scheduling.  The  number  and  type  of 
tractors  and  trailers,  if  any,  must  be  scrutinized  to  obtain  maximum 
use.  Another  facet  open  for  review  is  the  use  of  mechanical  loaders 
to  stock  merchandise  on  shelves. 

General  operations  embrace  systems  and  devices  to  make  the  ad- 
ministration of  the  store  more  efficient.  These  range  from  a  study 
of  bag  sizes  for  packing  customer  purchases  in  order  to  eliminate 
the  odd  sizes,  to  a  review  of  insurance  in  force  by  a  consulting  firm. 

Store  department  operations  include  systems,  devices,  and  rou- 
tines to  make  the  operation  of  an  individual  department  more  effi- 
cient In  the  produce  department,  for  example,  racks  for  display  can 
be  filled  substantially  quicker  by  the  use  of  two  hands  rather  than 
one.  Or,  in  the  meat  department,  specific  sizes  of  cellophane  or  other 
wraps  should  be  established  and  only  those  sizes  should  be  kept  on 
hand. 

Back-room  expenses  include  the  behind-the-scenes  costs.  These 
can  best  be  kept  in  hand  by  centering  responsibility  in  one  person 
and  keeping  that  individual  or  a  replacement  for  him  there  at  all 
times.  This  assures  greater  productivity  as  well  as  reducing  inven- 
tory shortages. 

Construction  and  maintenance  costs  include  expenses  involved  in 
modernization,  repair,  and  maintenance  of  facilities.  These  range 
from  protection  of  shopping  carts,  by  assuring  their  proper  use,  to 
the  channeling  of  all  orders  for  equipment  servicing  through  central 
purchasing  at  headquarters. 

Distribution  costs  studies  should  be  conducted  in  these  six  major 
areas  of  expense  control  to  make  certain  maximum  efficiency  of  op- 
erations is  being  obtained. 

PROFIT 

In  the  preceding  section,  the  operating  expenses  of  a  supermarket 
were  examined.  It  was  shown  that  management  in  this  industry  faces 


118  Supermarketing 

a  severe  challenge  from  constantly  rising  costs  that  are  tending  to 
erode  profits.  The  latter— profit— is  the  residue  left  from  total  sales 
after  the  goods  sold  and  the  operating  expenses  are  taken  into  ac- 
count. The  term  profit  or  net  profit  refers  to  earnings  before  income 
taxes.  Profits  before  taxes  are  used  in  order  to  discern  the  operating 
status  without  having  to  consider  the  changing  income-tax  structure. 

Trends  in  Net  Profit 

There  are  three  major  reasons  for  going  into  business,  namely, 
altruistic  purposes,  desire  for  power,  and  profit.  Of  these,  the  major 
motive  is  profit.  The  results  of  yearly  surveys  conducted  by  the  staff 
of  Super  Market  Merchandising  for  1947  through  1956  indicated 
that  the  average  profit  of  the  reporting  supermarkets  as  a  percentage 
of  sales  was:  14 

Year  %  sales 

1947 3.7 

1948 3.7 

1949 2.8 

1950 3.4 

1951 2.0 

1952 2.2 

1953 2.2 

1954 3.0 

1955 2.9 

1956 2.7 

Net  profits  expressed  as  a  percentage  of  sales  for  the  selected 
supermarket  chains  in  1956  are  shown  in  Table  5-2  to  range  from  a 
low  of  1.3  per  cent  for  Shaffer  Stores  Company,  a  Pennsylvania  chain, 
to  a  high  of  5.2  per  cent  for  A.  J.  Bayless  Markets,  Incorporated, 
an  Arizona  chain.15  For  the  years  in  the  postwar  period,  the  rate  of  | 
return  for  the  companies  has  ranged  generally  from  2  to  5  per  cent 

14  These  statistics  are  from  the  yearly  surveys  published  in  May  editions,  1948 
through  1951,  respectively,  of  Super  Market  Merchandising.  Statistics  for  1952 
through  1956  are  from  the  yearly  studies  published  in  August  editions,  1953 
through  1957,  respectively,  of  Super  Market  Merchandising. 

15  Diversity  of  ownership  and  operating  policy  within  the  industry  plus  non- 
standardized  accounting  practices  have  resulted  in  wide  variation  in  the  re- 
ported net  profits  of  individual  companies.  The  principal  variation  has  been  in 
the  methods  of  reporting  returns  to  the  owners;  that  is,  whether  it  be  reported 
as  salaries  or  profit. 


Expenses  and  Profits  119 

of  sales;  statistics  from  these  selected  companies  generally  indicate 
a  fluctuating  but  slightly  decreasing  earnings  trend  measured  as  a 
percentage  of  sales.  However,  dollar  profits  of  the  individual  con- 
cerns have  increased  along  with  the  sharp  rise  in  sales  in  the  postwar 
period. 

The  operating  results  of  the  Harvard  Study  of  Food  Chains  and 
the  yearly  surveys  of  the  Super  Market  Institute  shown  in  Tables  4-2 
and  6-1,  respectively,  indicate  that  in  the  1950's  there  has  been  a 
rising  expense  trend,  and  while  gross  margins  have  tended  upward, 
they  have  not  kept  pace  with  expenses;  hence  net  profits  have  suf- 
fered. 

Comparison  of  Profit  with  Other  Types  of  Retailers 

Profits  of  supermarkets  have  been  shown  to  vary  between  2  and 
3  per  cent  of  sales.  Statistics  in  Table  6-8  indicate  that  drug,  variety, 

TABLE  6-8 

Net  Profit  as  a  Percentage  of  Sales  for  Various 
Types  of  Retail  Stores  for  the  Year  1954. 


Net  profit  as 

Type  of  store 

a%  of  sales 

Department  store 

4.20  o 

Drug  store 

5.40  & 

Furniture  store  (large) 

1.58  « 

Hardware  store 

1.90  * 

Meat  market 

1.40  « 

Supermarket 

3.00/ 

Variety  store 

5.32  9 

a  Controllers  Congress,  1954  Merchandise  and  Operating  Results  (New  York: 
National  Retail  Dry  Goods  Association,  1955),  p.  1. 

&  Lilly  Digest  (Indianapolis:  Eli  Lilly  &  Co.,  1955),  p.  21. 

c  1954  Furniture  Operating  Experiences  (Chicago:  National  Retail  Furniture 
Association,  1955),  p.  5. 

d"1954  Retail  Hardware  Survey,"  Hardware  Retailer,  June,  1955,  p.  77. 

eMeat  Markets — Operating  Results  in  1954  (New  York:  Dun  &  Bradstreet, 
Inc.,  1954),  p.  2. 

f  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1955),  p. 
1-17. 

9  "Harvard  Report  on  Variety  Chains,"  Chain  Store  Age,  Variety  Store  Man- 
agers Issue,  XXXI,  no.  8,  August,  1955,  p.  65. 


120  Supermarketing 

and  department  stores  return  a  much  larger  profit  percentage  than 
the  supermarket.  Both  variety  stores  and  drugstores  earned  over  5 
cents  in  the  form  of  profit  out  of  every  sales  dollar.  Yet,  this  modest 
2  to  3  per  cent  return  for  a  super  is  significant  when  viewed  against 
the  large  dollar  volume  of  a  supermarket. 

Other  measures  of  profitability,  such  as  profits  as  a  percentage  of 
net  worth  and  earnings  on  total  assets,  are  considered  in  the  follow- 
ing chapter. 

SUMMARY 

From  its  inception,  the  supermarket  profit  was  predicated  on  volume 
operation.  Low  price  policies,  display  techniques,  advertising,  and  pro- 
motion were  cornerstones  for  substantial  sales.  Expenses  of  supers  to  at- 
tain this  volume  have  risen  steadily  since  the  1930's,  despite  efforts  to 
keep  them  in  hand.  These  included  the  devising  of  policies  such  as  self- 
service  and  simplified  stock  handling  to  reduce  expenses  as  a  percentage 
of  a  given  sales  volume,  the  developing  of  a  large  volume  against  which 
the  more  fixed  expenses  such  as  rent  and  utilities  could  be  allocated,  and 
the  instituting  of  cost-reduction  programs.  However,  store  management 
has  centered  its  attention  on  volume  and  has  left  unrealized  a  source  of 
possible  earnings  through  closer  control  of  expenses  at  the  local  level.  The 
net  profit  that  has  filtered  down  has  appeared  modest  when  expressed  as 
a  percentage  of  sales.  While  there  has  been  a  slight  lowering  of  profit 
margins,  the  modest  percentage  return  is  significant  when  viewed  against 
the  large  dollar  volume  per  store. 


FINANCIAL  FACTORS 


INTRODUCTION 

In  the  previous  three  chapters,  internal  operating  procedures  and 
policies  developed  by  supermarket  management  were  examined  in 
the  framework  of  an  operating  statement.  Selling  techniques,  buy- 
ing practices,  establishment  of  margins,  promotional  strategy,  and 
expense  analysis  and  control  were  the  major  operating  principles 
examined.  It  is  the  objective  of  this  chapter  to  continue  the  study  of 
internal  supermarket  characteristics  that  have  led  to  the  success  of 
the  industry,  except  that  in  this  section,  financial  aspects  are  scru- 
tinized in  the  framework  of  a  balance  sheet.  The  approach  used  in 
this  chapter  to  study  the  financial  characteristics  was  necessitated 
by  the  general  failure  of  the  supermarket  industry  to  publish  repre- 
sentative balance  sheet  statistics. 

GENERAL  ASSET  STRUCTURE  OF  A  SUPERMARKET 

The  finances  required  to  open  a  modern  supermarket  have  under- 
gone considerable  change  from  the  days  of  Roy  O.  Dawson  and 
Robert  Otis,  who  started  the  Big  Bear  with  $10,000.1  Consider  the 
case  of  Food  Fair  Stores,  Incorporated,  an  expanding  and  progres- 
sive supermarket  chain  of  362  units  as  of  January  31,  1959.  Accord- 
ing to  Meyer  Marcus,  vice  president,  a  modern  suburban  unit,  oc- 
cupying from  12,000  to  15,000  sq  ft  of  space  and  grossing  $1,000,000 
to  $1,500,000  yearly,  required:  $65,000,  inventory;  $65,000,  equip- 
ment; and  about  $200,000,  land  and  building.2 

1  M.  M.  Zimmerman,  Super  Market  Spectacular  Exponent  of  Mass  Distribu- 
tion (New  York:  Super  Market  Publishing  Co.,  1937),  p.  8. 

2  "Food  Fair  Supermarkets,"  Fortune,  Vol.  XLI,  no.  6,  June,  1950,  p.  99. 

121 


122  Supermarketing 

Harley  V.  McNamara,  president  of  the  National  Tea  Company, 
a  supermarket  chain  of  932  units  as  of  December  31,  1958,  reported 
the  costs  of  a  new  supermarket  as  follows:  inventory,  $58,000;  fix- 
tures and  installations,  $42,000;  and  real  estate,  $100,000.3  Some  of 
the  recently  opened  "super  duper"  stores  required:  inventory,  $100,- 
000  to  $250,000;  equipment  and  installation,  $100,000  to  $250,000; 
and  monthly  rental  from  $2,000  to  $5,000. 

A  new  26,000  to  27,000-sq  ft  store  in  Houston,  Texas,  required:  4 

Land $100,000 

Building 350,000 

Equipment 150,000 

Inventory 150,000 

$750,000 

Similarly,  a  new  store  in  Oklahoma  City,  Oklahoma,  on  72,800 
sq  ft  of  land,  with  a  building  of  18,000  sq  ft  of  space,  required:  5 

Land $  47,750 

Building 140,000 

Paving 20,000 

Equipment 90,000 

Inventory 95,000 

Cash  fund 30,000 

$422,750 

John  A.  Logan,  president  of  the  National  Association  of  Food 
Chains,  reported  the  following  asset  items  of  an  average  super- 
market in  a  statement  to  the  Consumers  Study  Subcommittee  of  the 
Committee  on  Agriculture,  House  of  Representatives,  on  May  7, 
1957: 6 

3  Taken  from  an  address,  "Modern  Trends  in  Food  Retailing,"  given  before 
the  Chicago  Federated  Advertising  Club  on  October  12,  1952. 

4  M.  M.  Zimmerman,  The  Super  Market  (New  York:  McGraw-Hill  Book  Co., 
Inc.,  1955),  p.  171. 

5  Ibid. 

6  John  A.  Logan,  Progress  in  Food  Distribution  (Washington:  National  As- 
sociation of  Food  Chains,  1957),  p.  20. 


Financial  Factors  123 

Building $192,000 

Parking  lot 10,000 

Leasehold  improvements   .     .  34,300 

Land 25,000 

Sales  equipment 87,100 

Behind-the-scenes  equipment .  65,500 

Inventory 82,000 

This  total  outlay  for  a  modern  super  is  a  far  cry  from  the  $3,000 
capital  required  to  open  an  A  &  P  unit  in  the  1920's  or  the  $10,000 
Big  Bear  in  1933. 

DEVELOPMENT  OF  A  REPRESENTATIVE 
SUPERMARKET  BALANCE  SHEET 

The  major  assets  required  to  open  a  supermarket,  regardless  of 
who  owns  or  finances  the  building,  have  been  shown  to  be  cash, 
inventory,  prepaid  expenses,  equipment,  land,  and  building.  In- 
tangible assets  in  the  form  of  good  will  and  leasehold  improvements 
also  appear.  Inasmuch  as  no  statistics  based  on  industry  surveys  as 
to  asset  and  liability  items  have  been  published,  a  balance  sheet  of 
a  representative  supermarket  was  developed  and  presented  in  Table 
7-1  along  with  a  representative  operating  statement.  These  financial 
statistics  were  based  on  ratio  analyses  from  various  industry  sources, 
particularly  data  submitted  by  certain  supermarket  chains  which 
operated  6,379  stores  out  of  total  industry  units  of  17,024  in  1956. 
Other  data  were  gleaned  from  statements  and  comments  of  bankers 
and  executives  in  the  industry,  obtained  through  personal  interview, 
and  from  speeches  and  trade  magazines.  This  is  the  first  known 
endeavor  to  depict  a  representative  store.  The  estimates  developed 
will  of  course  vary  from  statistics  of  individual  concerns  because  of 
operating  policies,  location,  and  size. 

Assume  that  the  representative  super  in  Table  7-1  occupies  a  10,- 
000-sq  ft,  single-story  brick  building  in  a  suburban  location.  Ad- 
jacent is  a  lighted  and  paved  parking  lot  of  40,000  sq  ft— four  times 
the  store  area.  Using  $110  yearly  sales  per  square  foot  of  building 
space  as  a  conservative  estimate,  the  store  transacts  a  $1,100,000 


124  Supermarketing 


TABLE  7-1  * 

Balance  Sheet  and  Yearly  Operating  Statement  of 
a  Representative  Supermarket. 

Balance  Sheet 
Asssets  Liabilities 

Cash $  30,000      Accounts  payable     ...     $  40,000 

Inventory 75,000      Accruals  and  notes  payable         20,000 


Total  current  assets    .  105,000      Total  current  liabilities     .         60,000 

Equipment 75,000      Long-term  debt    ....       104,000 

Deferred  charges      .     .     .  3,000      Net  worth 164,000 

Building 100,000 

Parking  lot 15,000 

Land 30,000 


Total  assets  ....     $328,000      Total  liabilities    ....     $328,000 


Yearly  Operating  Statement 

Sales $1,100,000         100% 

Cost  of  sales 891,000  81 


Gross  margin 209,000  19 

Operating  expenses,  fixed 66,000  6 

Operating  expenses,  variable 110,000  10 


Net  profit  before  taxes $      33,000  3% 

*  Based  on  ratio  analyses  from  various  industry  sources. 

yearly  volume.  Assuming  a  gross  margin  of  19  per  cent  and  a  stable 
monthly  inventory,  yearly  cost  of  sales  will  be 

$1,100,000  X  (100%  -  19%  )  =  $891,000 
With  a  turnover  of  12  times  per  year,  the  average  inventory  in  the 
store  is 

$891,000  -f- 12  =  $74,250 

or,  for  approximate  purposes,  inventory  is  estimated  at  $75,000. 
Equipment  in  a  store  approximately  equals  the  inventory  of  $75,000. 
Another  rule  of  thumb  employed  is  $3.00  of  equipment  for  each  $1.00 
in  weekly  sales. 


Financial  Factors  125 

The  ratio  of  inventory  to  total  current  liabilities  equals  from  1:1 
to  about  VA  :1.  Using  a  ratio  of  VA  :1,  current  liabilities  will  equal 

$75,000  -f- 1.25  =  $60,000 
In  turn,  accounts  payable  equals  about  two-thirds  of  current  liabili- 
ties, or  $40,000,  with  the  balance  accruals  plus  current  payments  on 
indebtedness.  Cash  should  average  from  one-half  to  equal  the  cur- 
rent liabilities,  thus  assuring  adequate  working  funds.  If  the  one-half 
ratio  is  used,  cash  needed  will  be  $30,000.  The  current  ratio  in  this 
typical  balance  sheet  is  13A  :1,  a  figure  in  line  with  ratios  that  vary 
from  1*4:1  up  to  2:1. 

The  10,000-sq  ft  building,  using  an  estimate  of  $10  per  square  foot, 
will  cost  $100,000.  Land  cost  varies  by  location,  but  it  has  been  esti- 
mated to  be  about  20  to  30  per  cent  of  the  building  for  suburban 
locations.  If  the  30  per  cent  figure  is  used,  land  cost  will  be  $30,000. 
The  grading,  paving,  and  lighting  of  a  40,000-sq  ft  parking  lot  will 
cost  approximately  $15,000.  Prepaid  expenses  are  nominal  and  would 
be  no  more  than  $3,000. 

Indebtedness  can  vary  widely  among  the  individual  markets.  Total 
debt  to  net  worth  tends  to  be  heavy,  especially  for  concerns  financ- 
ing real  estate.  Under  the  assumption  that  this  firm  owns  its  build- 
ing, a  figure  of  $1.00  of  debt  to  $1.00  of  equity  capital  is  used.  Thus 
net  worth  will  be  one-half  of  total  assets  of  $328,000,  or  $164,000. 
Total  debt  will  be  $164,000,  of  which  $60,000  is  already  accounted 
for  by  current  liabilities.  The  balance  of  indebtedness  will  be 

$164,000  —  $60,000  =  $104,000 
This  $104,000  is  long-term  debt  secured  by  equipment  and  building 
and  is  represented  by  both  chattel  and  real  estate  mortgages. 

To  develop  the  picture  further,  an  operating  statement  predicated 
on  ratios  established  in  Chapters  4  through  6  is  presented  in  Table 
7-1. 

CURRENT  ASSETS 

The  principal  current  items  are  cash  and  inventory.  This  highly 
simplified,  current  asset  condition  results  from  sales  on  a  cash  basis. 


126  Supermarketing 

In  addition,  the  amount  of  working  capital  needed  for  a  super- 
market tends  to  be  less  than  that  for  most  other  forms  of  retailing 
because: 

1.  Inventory  turnover  is  considerably  higher.  Therefore  less  in- 
ventory is  needed  for  a  given  sales  volume. 

2.  Cash  sales  reduce  the  time  for  one  merchandising  cycle, 
namely,  the  movement  from  inventory,  to  receivables,  to  cash,  and 
back  to  inventory.  The  speed  of  the  merchandising  cycle  also  is  in- 
creased by  high  inventory  turnover  in  supermarts. 

3.  Consigned  merchandise  from  rack  jobbers  is  used  frequently 
in  the  nonfood  area.  The  super  then  not  only  has  no  merchandising 
problems  but  also  has  no  funds  tied  up  in  nonfood  items. 

4.  Relatively  stable  sales  from  week  to  week  or  month  to  month 
can  lower  working  capital  needs  and  simplify  its  control.  Seasonal 
inventories  are  much  less  of  a  problem  than  in  most  other  forms  of 
retailing,  so  that  peak  working  capital  needs  are  less.  In  addition, 
the  predictability  of  sales,  inventory,  and  working  funds  is  simpler, 
so  that  supers  can  work  on  narrower  cash  requirements. 

Therefore  the  current  assets  needed,  compared  with  other  forms 
of  retailers  doing  the  same  volume,  can  be  substantially  less.  A 
steady  cash  flow  from  sales  reduces  cash  requirements  and  makes 
budgeting  problems  simpler.  Thus  management  can  center  its  at- 
tention on  inventory  and  its  control.  A  retailer  is  a  merchandiser,  and 
profits  are  made  from  merchandising  operations— buying  and  selling. 
However,  because  of  rising  food  costs  and  more  diversified  inven- 
tories, members  of  this  industry  have  found  it  necessary  to  gradually 
increase  working  capital  over  the  years. 

Investment  bankers  who  have  assisted  this  industry  in  its  financ- 
ing problems  by  selling  securities  to  the  general  public  have  indi- 
cated that  working  capital  needs  for  a  smaller  concern  should  be 
150  per  cent  of  total  debt  and  for  large  chains  at  least  125  per  cent 
of  total  liabilities.7  An  examination  of  the  balance  sheets  of  repre- 
sentative industry  members  indicates  that  this  ratio  varies  by  size 

7  These  statistics  are  from  an  address  by  Al  Donohue,  Kidder  Peabody  and 
Co.,  at  the  Twentieth  Annual  Meeting  of  the  National  Association  of  Food 
Chains  held  in  Washington,  D.C.,  on  December  5,  1953. 


Financial  Factors  127 

of  concern  and  is  also  a  function  of  the  number  of  buildings  owned, 
the  current  expansion  plans,  and  the  method  of  financing.  Colonial 
Stores,  Incorporated,  as  of  December  31,  1958,  had  a  ratio  of  work- 
ing capital  to  debt  of  125  per  cent;  Fisher  Brothers  Company,  a 
Cleveland  chain,  had  a  ratio  of  over  200  per  cent  on  the  same  date; 
and  Daitch  Crystal  Dairies,  Incorporated,  a  New  York  chain,  had 
working  capital  approximately  equal  to  indebtedness. 

EQUIPMENT  NEEDS  IN  A  SUPERMARKET 
Next  consider  the  specific  equipment  needed  in  a  modern  super- 
market. Basically  it  takes  as  much  capital  to  equip  a  store  as  to 
stock  it.  The  substantial  investment  becomes  apparent  when  the 
costs  of  specific  items  are  considered:  8 

1  check-out  stand  and  register $1,775 

1  double-decked  dairy  case 1,360 

1  gondola  for  display 675 

1  shopping  cart 22 

1  ice  cream  freezer 2,100 

1  frozen  food  case 1,475 

1  coffee  grinder 375 

Refrigerated  display  space  for  produce  and  meat, 

per  linear  foot 150 

Air  conditioning  cost  for  a  single  store,  20,000-sq  ft 

building •     •  17J00 

Compressor  for  the  same  size  building 6,850 

In  a  modern  market  with  14,200  sq  ft  of  selling  space  and  total 
space  of  24,200  sq  ft,  the  following  layout  specifications  for  meat, 
produce,  and  dairy  displays  were  established:  9 

Lin  ft 

Produce I™ 

Fresh  meat 70 

Processed  meat ™ 

Delicatessen  items 20 

Floral i5 

Dairy  and  cheese 60 

Total 355 

8  "The  Cost  of  a  Supermarket,"  Chain  Store  Age,  Grocery  Executive  Edition, 
October,  1953,  p.  197. 

9  "How  Three  Get  More  for  Their  Construction  Dollar,"  Super  Market  Mer- 
chandising, Vol.  XXIII,  no.  5,  May,  1958,  p.  86. 


128  Supermarketing 

At  a  cost  of  $150  per  linear  foot,  this  equipment  alone  cost  approxi- 
mately $53,250.  In  addition,  the  market  required  144vft  of  frozen- 
food  display  space.  »"■ 

Furthermore,  behind-the-scenes  equipment  must  be  considered. 
In  a  20,000-sq  ft  market  built  in  the  1950s,  these  expenditures  neces- 
sitated (1)  $1,300  for  mechanical  handling  of  merchandise,  (2)  $2,- 
200  for  a  built-in  overnight  produce  refrigerator,  and  (3)  $8,500 
for  a  built-in  meat-storage  room.10  A  cork  cooler  room  in  a  10,752- 
sq  ft  market  built  in  1958  cost  $ll,225.n 

Outside  equipment  also  must  be  considered.  Furr's,  a  supermarket 
operation  in  Lubbock,  Texas,  paid  $5,225  for  neon  display  signs  in 
a  modern  market.12  Parking  lot  lights  can  vary  from  $800  to  $2,500, 
depending  on  the  size  of  lot  and  type  of  equipment.  An  advertising 
pylon  or  tower  used  to  differentiate  the  stores  of  a  Midwest  chain 
cost  $15,000. 

Although  smaller  supers  do  not  require  as  much  in  fixtures  on  a 
dollar  basis,  it  is  important  to  recognize  the  costly  and  specialized 
equipment  required  to  operate  a  supermarket.  In  addition,  the 
equipment  needs  continue  to  grow  both  in  dollar  cost  and  in  abso- 
lute amounts. 

LAND  AND  BUILDING 

The  direction  taken  by  investment  in  assets  plays  a  vital  role  in 
supermarket  earnings.  On  the  one  hand,  supers  need  to  locate  in 
areas  where  operations  can  be  profitable.  This  may  involve  real 
estate  commitments  in  order  to  have  a  place  to  do  business.  On  the 
other  hand,  supers  are  in  business  to  make  money  on  merchandising, 
not  real  estate. 

To  erect  a  supermarket  building  is  costly.  Vice-President  Meyer 
Marcus  of  Food  Fair  Stores  indicated  that  a  12,000-  to  15,000-sq  ft 
building  and  land  in  a  suburban  location  would  cost  about  $200,- 

10  "The  Cost  of  a  Supermarket,"  Chain  Store  Age,  op.  cit. 

11  "How  Three  Get  More  for  Their  Construction  Dollar,"  Super  Market  Mer- 
chandising, op.  cit. 

12  Ibid.,  p.  100. 


Financial  Factors  129 

OOO.13  Carl  Teutsch,  architect  and  engineer  of  supermarkets  in  the 
Midwest,  estimated  that  a  1954  one-story  supermarket  cost  $9.00  to 
$10.00  a  square  foot  plus  the  land.14  He  quoted  the  cost  just  prior 
to  World  War  II  at  about  $5.00  a  square  foot.  John  A.  Logan,  presi- 
dent of  National  Association  of  Food  Chains,  reported  the  average 
modern  chain  supermarket  cost  $25,000  for  the  land  and  $192,000 
for  the  building.15 

Specific  building  costs  vary  by  areas.  Eagle-United  Supermarkets, 
Rock  Island,  Illinois,  reported  the  following  building  cost  figures 
for  a  10,752-sq  ft  building  built  in  1958: 16 

General  contract $  86,310 

Steel 17,573 

Gypsum  roof 6,800 

Floor  covering 1,820 

Electrical  contract 37,460 

Plumbing 12,230 

Painting 1,202 

Acoustical  ceiling 5,896 

Heating  and  air  conditioning    > 22,500 

Magic  doors 3,391 

Miscellaneous 2,184 

Total $197,366 

H.  W.  Underbill,  Los  Angeles  architect,  reported  the  following 
building  costs  for  a  one-story  stucco  building  with  27,800  sq  ft  of 
space  all  on  one  floor:  17 

Structure  finish  and  plumbing $204,000 

Electrical  work 37,000 

Air  conditioning 16,500 

Fire  sprinklers 14,250 

Cooler  rooms 8,200 

Total $279,950 

13  "Food  Fair  Supermarkets/'  Fortune,  op.  cit. 

14  These  estimates  were  made  in  an  interview  on  December  10,  1954.  Mr. 
Teutsch  had  designed  and  constructed  many  of  the  buildings  for  the  National 
Tea  Company. 

15  John  A.  Logan,  Progress  in  Food  Distribution,  op.  cit. 

16  "How  Three  Get  More  for  Their  Construction  Dollar,"  Super  Market  Mer- 
chandising, op.  cit.,  p.  101. 

"  Ibid.,  p.  95. 


130  Supermarketing 

The  average  1957  super,  as  reported  by  the  Super  Market  Insti- 
tute, required  building  costs  of  $11.24  per  square  foot,  exclusive  of 
land,  parking  lot,  coolers,  and  sprinklers  but  including  air  condition- 
ing.18 Costs  were  slightly  lower  ($9.83  per  square  foot)  if  all  con- 
struction was  on  one  floor.  The  industry  figure  for  all  equipment, 
land,  and  building  for  the  year  1957  was  $19.98  per  square  foot  of 
building  space. 

INTANGIBLE  ASSETS 

Two  intangible  assets  commonly  appear  on  the  records  of  super- 
markets. One  results  from  improvements  or  alterations  made  to  prop- 
erty controlled  by  the  super  under  lease— leasehold  improvements. 
Such  improvements  become  a  part  of  the  real  estate  and  revert  to 
the  owner  of  the  real  estate  at  the  expiration  of  the  lease.  Leasehold 
improvements  include  remodeled  store  fronts,  electronic  doors,  and 
loading  platforms.  These  assets  are  of  value  to  the  super  in  the  con- 
duct of  its  business  in  leased  quarters,  but  they  are  subject  to  amor- 
tization over  the  period  of  the  lease.  The  extent  of  improvement  put 
in  by  a  lessor  is  related  to  the  rental  charge,  the  value  of  the  real 
estate,  and  the  length  of  the  lease. 

The  other  intangible  asset  that  appears  is  good  will.  This  occurs 
in  the  outright  purchase  of  a  unit  or  group  of  units  by  another 
super.  Selling  price  is  predicated  on  earning  power,  not  the  book 
value  of  the  assets.  For  example,  one  supermarket  chain  in  the  Mid- 
west paid  $100,000  for  a  market  that  constantly  earned  $25,000 
yearly  profit  before  taxes.  Assets  were  carried  on  the  sellers  books, 
however,  at  $80,000.  The  buyer  recorded  on  its  records  $80,000  in 
tangible  assets  and  $20,000  in  good  will.  The  recent  strong  trend 
toward  acquisition  and  merger  that  developed  in  this  industry  in 
the  1950's  has  led  to  the  rapid  appearance  of  this  intangible  asset 
on  supermarket  balance  sheets.  Good  will  can  be  written  off  to  a 
$1.00  value  at  the  discretion  of  the  purchaser. 

18  From  an  address,  "Facts  About  New  Supers  Opened  in  1957,"  given  by 
Curt  Kornblau,  Director  of  Research,  Super  Market  Institute,  at  the  annual  con- 
vention in  Cleveland,  Ohio,  in  May,  1958. 


Financial  Factors  131 

LEASING  OF  FIXED  ASSETS 

Supermarkets  are  merchandising  organizations  that  thrive  on  a 
large  volume  of  fast-moving  inventory.  Profits  result  from  selling 
merchandise— the  cash-to-inventory-to-cash  cycle.  In  order  to  achieve 
this  objective  in  a  dynamic  industry,  supers  have  been  forced  to 
pioneer  new  locations  with  modern  stores  that  require  a  substantial 
investment  in  equipment. 

There  are  two  methods  by  which  supers  can  obtain  the  necessary 
fixed  assets  needed  for  their  operation,  namely,  lease  or  purchase. 
Under  the  lease  arrangement,  the  fixed  assets  used  do  not  appear  on 
the  balance  sheet  nor  do  the  lease  payments  contracted  for  appear  as 
a  liability,  even  though  the  rental  obligation  over  a  long  period  of 
years  is  there.  Supers,  in  effect,  are  able  to  have  their  long-term 
financing  provided  by  others.  Under  a  purchase  arrangement,  the 
fixed  assets  and  such  indebtedness  as  results  from  financing  appear 
on  the  records.  This  financing  of  fixed  assets  also  can  be  furnished 
by  others  or  by  the  supermarket  itself  through  equity  capital;  or  the 
financing  can  be  furnished  jointly  by  others  (creditors)  and  the 
operators  (owners).  Therefore  the  method  of  acquiring  fixed  assets, 
either  leasing  or  purchasing,  significantly  affects  the  ratio  of  profits 
to  total  assets  used  by  supermarkets  and  makes  analyses  and  com- 
parisons among  firms  difficult.  In  addition,  the  method  of  acquisition 
has  a  bearing  on  profits  related  to  net  worth.  If  the  fixed  assets  are 
leased,  ownership  capital  can  be  used  for  current  operations.  If 
fixed  assets  are  owned  and  can  be  financed  100  per  cent  by  credi- 
tors, the  equity  capital  can  still  be  used  entirely  for  current  opera- 
tions. Thus  the  ratio  of  net  profit  to  net  worth  will  not  be  changed. 
If  fixed  assets  are  owned  and  a  portion  of  these  assets  must  be 
financed  from  equity  capital,  which  is  generally  the  case,  then  one 
of  two  things  must  happen.  Either  more  equity  capital  is  needed 
(in  which  case  the  ratio  of  net  profit  to  net  worth  decreases)  or 
creditors'  funds  must  be  obtained  to  finance  part  of  current  opera- 
tions (in  which  case  the  ratio  of  net  profit  to  net  worth  remains  the 
same  as  in  the  first  case). 


132  Supermarketing 

To  compare  companies  that  (1)  own  fixed  assets,  (2)  lease  fixed 
assets,  or  (3)  both  own  and  lease  fixed  assets,  the  long-term  lease 
payments  should  be  capitalized  at  some  rate  depending  on  real 
estate  market  conditions  in  order  to  get  a  true  picture  of  debt  in 
relation  to  controlled  assets.  This  capitalized  figure  can  be  con- 
sidered as  debt  when  making  comparisons,  to  put  all  concerns  on 
a  comparable  basis. 

Theory  of  Leasing  versus  Owning  Store  Buildings 

Should  a  supermarket  invest  in  land  and  buildings?  The  "cheapy" 
supers  looked  for  abandoned  factories  or  warehouses  to  rent.  But 
the  supers  followed  the  population  shift.  As  supermarkets  mush- 
roomed, particularly  in  outlying  areas,  new  buildings  and  parking 
lots  have  been  required.  Many  of  these  structures  are  specialized 
as  to  size,  arrangement,  and  location.  Alternate  uses  of  the  property 
frequently  are  limited,  which  increases  the  risk.  Although  some  loca- 
tions have  been  available  for  rent  in  shopping  centers  and  in  new 
suburban  buildings,  the  supermart  operators  frequently  are  required 
to  finance  buildings  in  new  locations.  Is  this  the  best  alternative  use 
of  capital? 

Assume  the  super  shown  by  the  statistics  in  Table  7-1  could  lease 
the  property.  Then  the  balance  sheet  of  the  super  would  be  as  fol- 
lows: 

Cash $  30,000  Accounts  payable     ...  $  40,000 

Inventory 75,000  Accruals  and  payments  .     .  20,000 

Equipment 75,000  Long-term  debt    ....  31,500 

Deferred  charges      .     .     .  3,000  Net  worth 91,500 

Total  assets  ....     $183,000  Total  liabilities      .     .     $183,000 

The  changes  from  Table  7-1  are  predicated  on  the  following  as- 
sumptions: Building,  land,  and  parking  lot  are  eliminated  from  the 
records.  Assume  that  the  real  estate  of  $145,000  was  financed  equally 
by  the  operator  and  an  insurance  company;  both  long-term  debt  and 
net  worth  would  be  reduced  $72,500  each  to  $31,500  and  $91,500, 
respectively.  No  change  in  the  current  position  would  be  involved. 
On  the  reasonable  assumption  that  the  rental  expense  of  the  prop- 


Financial  Factors  133 

erty  to  the  super  would  be  approximately  the  same  as  the  building 
expense  involved  under  ownership  of  the  property  (under  owner- 
ship the  super  faces  depreciation,  interest,  insurance,  and  taxes), 
the  net  profit  would  remain  3  per  cent  of  sales.  With  the  volume  un- 
changed, the  net  profit  would  remain  at  $33,000. 

Profit  on  total  assets  of  $328,000  for  the  company  shown  in  Table 
7-1  would  be 

$33,000  xloo  =  iaoe% 


$328,000 

Profit  on  total  assets  of  $183,000  for  the  same  company  but  with 
the  real  estate  leased  would  be 

SxlM=18« 

Simply,  leasing  the  real  estate  instead  of  owning  it  requires  less 
equity  capital  and  results  in  a  substantially  larger  profit  related  to 
total  assets  owned.  Yet,  in  effect,  the  super  is  controlling  $328,000 
in  assets  although  only  $183,000  appear  on  the  financial  records. 
The  lease  payments  could  be  capitalized  and  considered  as  debt  and 
the  real  estate  regarded  as  an  asset  in  order  to  compare  assets  used. 
Profit  on  ownership  capital  of  $164,000  for  the  super  in  Table  7-1 
that  owns  the  building  would  be 

g^X  100  =  20.12% 

But  if  the  building  were  leased,  the  percentage  profit  on  ownership 
capital  of  $91,500  would  be 

|»X  100  =  36.07% 

Inventory  versus  Real  Estate 

Continue  this  analysis  in  terms  of  an  alternative  of  investing  either 
in  real  estate  or  in  merchandise.  The  representative  balance  sheet  in 
Table  7-1  indicates  that  real  estate  totaled  $145,000.  Assume  this 
property  commands  a  rental  equal  to  1  per  cent  of  sales  of  $1,100,- 


134  Supermarketing 

000,  or  $11,000,  per  year.  Furthermore,  assume  taxes  and  insurance 
of  $1,500  and  neglect  depreciation  and  repairs.  The  yearly  net  re- 
turn on  this  asset  bearing  no  mortgage  would  be 

$11,000  -  $1,500  ==  $9,500 
On  an  investment  of  $145,000,  this  $9,500  would  furnish  a  return  of 
6.6  per  cent. 

To  make  an  even  better  percentage  showing  on  the  investment  in 
real  estate,  introduce  leverage.  Assume  the  property  to  be  mort- 
gaged for  70  per  cent  of  its  value  at  5  per  cent  yearly  interest.  The 
owner  would  tie  up  only  30  per  cent  of  his  equity  in  the  property, 
or 

$145,000  X  30%  =  $43,500 

Interest  per  year  on  the  balance  would  be 

($145,000  -  $43,500)  X  5%  =  $5,075 

Therefore  total  yearly  expense  would  be    . 

$5,075  interest  +  $1,500  taxes  and  insurance  =  $6,575 

This  would  leave  a  yearly  net  profit  of 

$11,000  rental  —  $6,575  expense  =  $4,425 

A  return  of  $4,425  on  an  investment  of  $43,500  would  be  10.2  per 
cent.  This  would  leave  $101,500  of  the  original  equity  capital  of 
$145,000  still  available  for  other  purposes. 

If  the  $145,000  capital  were  placed  in  merchandise  and  the  prop- 
erty leased  at  a  comparable  rate,  the  added  inventory  of  $145,000 
divided  by  the  gross  margin  of  81  per  cent  would  bring  sales  of 

$145,000         _$170Q00 
(100%  -19%)  -$179'00° 

Net  profit  of  3  per  cent  on  that  volume  would  be  $5,370.  But  inven- 
tory is  turned  over  12  times  per  year,  thus  offering  a  phenomenal 
advantage  in  favor  of  merchandise  instead  of  building  ownership. 
Or,  if  the  minimum  investment  in  the  building  of  $43,500  is  used  as 


Financial  Factors  135 

the  addition  to  merchandise,  this  will  result  in  yearly  sales  at  a  turn- 
over of  12  times 

$43,500  _  m4m 


(100%  -19%) 

The  net  profit  on  the  $644,000  volume  at  a  3  per  cent  rate  would  be 

$644,000  X  3%  =  $19,320 

There  is  thus  a  substantially  greater  profit  possibility  of  $19,320  from 
merchandising  versus  the  $4,425  earned  on  the  building  investment, 
with  $101,500  of  the  original  equity  capital  of  $145,000  still  available 
for  other  purposes.  The  $19,320  profit  is  equivalent  to  a  rate  of  44.4 
per  cent  return  on  the  $43,500  placed  in  merchandise. 

Obviously  the  addition  of  a  larger  stock  totaling  $43,500  as  as- 
sumed above  would  require  a  larger  market  or  an  additional  market 
and  make  exact  comparisons  difficult.  If  the  same  market  were  used, 
conceivably  turnover  could  drop.  But  generally  there  is  a  compara- 
tive advantage  of  inventory  over  fixed  assets.  While  a  super  must 
have  a  place  in  which  to  transact  business,  management  must  real- 
ize that  greater  profits  can  accrue  from  skillful  merchandising  than 
from  investment  in  real  estate. 

Leasing  New  Locations 

The  major  difficulties  with  owning  store  buildings  are:  first,  tying 
up  capital  in  fixed  assets;  and  second,  using  capital  in  a  less  profit- 
able alternative,  namely,  real  estate  activities  and  not  merchandis- 
ing. Several  plans  have  been  used  to  finance  real  estate  requirements 
with  no  capital  needed  or  with  funds  tied  up  for  only  a  short  period 
of  time. 

The  first  is  to  have  the  building  erected  and  financed  by  outside 
interests.  The  super  in  turn  leases  the  premises.  Private  individuals 
who  own  suitable  land  or  concerns  who  develop  shopping  centers 
negotiate  with  supermarkets.  On  the  strength  of  a  lease,  perhaps 
10  years,  private  sources  erect  the  building  for  the  supermart.  Fre- 
quently small  satellite  stores  are  included  in  the  plans,  or  the  project 


136  Supermarketing 

is  designed  as  a  regional  shopping  center  housing  several  supers 
and  a  department  store.  If  the  property  is  developed  by  a  concern 
specializing  in  that  field,  it  is  generally  sold  in  turn  to  private  and 
institutional  investors. 

The  second  plan  is  to  have  a  supermart  concern  purchase  the 
land,  erect  the  building,  and  then  sell  the  property  to  private  in- 
vestors. The  supermarket  leases  the  premises  over  a  period  of  10  to 
25  years,  generally  with  an  option  to  renew  at  a  stipulated  increased 
rate.  Funds  are  tied  up  in  the  property  until  sold.  This  leaseback 
method  has  developed  into  a  widely  used  vehicle  for  financing  real 
estate  inasmuch  as  it  offers  the  merchant  a  "tailor-made"  market, 
frees  capital,  enables  rental  paid  to  be  a  legitimate  tax  expense,  and 
furnishes  a  market  to  the  merchant  over  a  long  period  of  years  in  an 
inflationary  era.  In  addition,  many  leases  contain  a  negotiation 
clause  which  will  permit  the  lessee  to  terminate  the  lease  should  the 
location  prove  undesirable.  Most  real  estate  departments  of  large 
chains  have  developed  properties  they  desire  to  sell. 

A  modification  of  the  leaseback  method  used  particularly  by 
larger  chains  is  the  organization  of  real  estate  holding  affiliates.  An 
affiliate  is  a  corporation  related  to  another  by  owning  or  being 
owned  by  a  common  management  or  by  any  other  control  device. 
The  concerns  involved  are  separate  legal  entities;  to  the  owner  of 
the  property  (the  lessor),  the  supermarket  operating  concern  (the 
lessee)  is  simply  a  tenant.  The  supermarket  chains  execute  long- 
term  leases  with  their  affiliates  at  going  market  rental  rates.  The 
affiliates  in  turn  have  been  able  to  obtain  financing,  sometimes  up 
to  100  per  cent  of  cost,  by  offering  as  security  not  only  the  proper- 
ties but  an  assignment  of  the  rentals  under  the  leases.  The  lender  in 
this  instance  bases  the  appraisal  not  on  the  cost  of  the  property  but 
on  the  value  under  terms  of  the  lease.  This  value  is  determined  by 
market  surveys  which  predict  expected  sales  volume  related  to  the 
rentals  to  be  paid  under  the  lease.  Frequently  these  leases  require 
a  fixed  obligation  plus  a  percentage  of  sales  above  a  prearranged 
amount. 

The  use  of  subsidiary  corporations  to  finance  real  estate  properties 


\ 


Financial  Factors  137 

is  examined  later  in  this  chapter  in  the  section  Sources  of  Capital- 
Debt. 

Lease  of  Equipment 

The  arguments  advanced  for  leasing  real  estate  properties  also 
can  be  used  as  reasons  for  supers  to  lease  equipment.  While  the 
rental  amount  of  equipment  has  nowhere  near  attained  the  propor- 
tions of  real  estate  leasing,  there  has  been  a  movement  in  this  direc- 
tion by  either  the  straight-lease  plan  or  the  rental-purchase  agree- 
ment. The  latter  has  the  advantage  in  that  the  lessor  has  an  option 
to  buy  the  equipment  at  some  time  during  the  term  of  the  lease, 
receiving  credit  against  the  purchase  price  for  any  rental  payments 
made.  The  rental-purchase  plan  may  meet  with  objections  of  the 
Internal  Revenue  Bureau.  The  key  as  to  what  constitutes  a  bona  fide 
lease  is  the  option  price  to  the  lessee-purchaser.  Where  this  price 
runs  considerably  lower  than  a  reasonable  market  value  for  the 
equipment,  tax  authorities  may  reverse  the  claim.  Operators  who 
contemplate  leasing  equipment  should  bear  in  mind  the  annual  cost 
of  owning  equipment,  which  in  1958  averaged  1.38  per  cent  of 
sales.19  These  costs  include  all  charges  for  taxes,  insurance,  inter- 
est, repairs,  and  depreciation. 

SOURCES  OF  CAPITAL— DEBT 

Two  sources  of  capital  in  a  business  enterprise  appear  on  the 
credit  side  of  a  balance  sheet,  namely,  ownership  funds  and  indebt- 
edness. In  the  preceding  section,  Leasing  of  Fixed  Assets,  it  was 
shown  that  a  super  can  control  certain  assets  needed  for  the  opera- 
tion of  the  business  without  legally  acquiring  title  to  them.  The 
asset  and  such  accompanying  financing  do  not  appear  on  the  bal- 
ance sheet.  Indebtedness,  considered  in  this  section,  generally  is 
classified  by  length  of  maturity  as  either  a  short-  or  long-term  obli- 
gation. The  usual  accounting  practice  is  to  regard  all  obligations 
due  within  one  year  as  a  short-term  liability;  all  others  are  long- 

!•  Wilbur  B.  England,  Operating  Results  of  Food  Chains  in  1958  (Cam- 
bridge: Harvard  Business  School,  Bulletin  No.  156,  1959),  p.  2. 


138  Supermarketing 

term.  A  list  of  sources  of  capital  for  the  supermarket  industry  is 
shown  in  Table  7-2. 
Supermarket  management  must  borrow  on  the  most  favorable 

TABLE  7-2  * 


Sources  of  Capital  for  the  Supermarket  Industry. 


Unsecured  short-term  loans 

Unsecured  long-term  loans  (deben- 
tures) 

Secured  real  estate  loans 


Secured  equipment  loans 

Inventory  loans 
Invested  equity  capital 


Commercial  banks 

Commercial  banks 
Insurance  concerns 
Public 

Commercial  banks 

Savings  banks 

Building  and  loan  associations 

Mortgage  bankers 

Investment  trusts 

Pension  funds 

Insurance  concerns 

Universities 

U.S.  Government  corporations 

Investment  bankers 

Finance  concerns 
Factors 
Commercial  banks 

Suppliers 
Commercial  banks 

Private 

Public  sale  of  stock 

Customers 


*  Arthur  H.  Richland,  "How  to  Raise  Cash  and  Influence  Bankers/'  Super 
Market  Merchandising,  XX,  no.  8,  August,  1956,  p.  42. 

terms  possible  in  this  narrow-profit  industry.  To  do  this,  it  is  neces- 
sary to  maintain  a  satisfactory  financial  condition  and  operating 
record.  In  addition,  management  (especially  of  the  smaller  firms) 
should  make  certain  that:  2° 

20  This  check  list  is  from  an  address,  "Essential  Factors  in  Sound  Financing/' 
given  by  Henry  Shaffer,  Shaffer  Stores  Co.,  Inc.,  at  the  20th  Annual  Meeting 
of  Food  Chains  in  Washington,  D.C.,  on  December  5,  1953. 


Financial  Factors  139 

1.  The  chief  officer  delegates  authority  and  spends  time  on  policy 
making  and  its  direction. 

2.  A  good  No.  2  man  is  in  the  company. 

3.  A  financial  policy  man  is  on  the  staff  working  with  the  top  ex- 
ecutives. 

4.  The  accountant  has  set  up  a  good  system  of  records  including 
cost  control  measures. 

5.  A  personnel  and  training  director  is  on  hand. 

6.  An  organization  chart  has  been  set  up. 

Short-Term  Indebtedness 

Supers  sell  on  a  cash  basis.  Stock  turns  over  about  once  a  month. 
It  would  seem  possible  for  the  trade  debt  to  be  large  and  for  credi- 
tors' money  to  be  used  to  finance  the  inventory.  However,  credit 
terms  vary  from  daily  or  weekly  for  some  fines  ( such  as  bread  and 
dairy  products)  to  monthly  for  others  (such  as  coffee  and  certain 
canned  goods).  In  addition,  it  is  imperative  that  supermarkets  take 
advantage  of  the  2  per  cent  cash  discount  frequently  offered  by 
food  product  manufacturers  or  distributors;  the  operating  profit  as 
a  percentage  of  sales  has  averaged  only  3  per  cent  of  sales  before 
income  taxes.  Thus  the  shortness  of  the  selling  terms  and  the  neces- 
sity for  taking  cash  discounts  has  mitigated  to  some  extent  in  the 
use  of  suppliers'  funds  to  finance  the  inventory.  However,  the  super 
that  gets  into  an  overstocked  inventory  position  frequently  is  aided 
financially  by  a  wholesaler  who  has  some  control  over  the  inventory. 
Banks  find  it  inconvenient  to  make  loans  secured  by  the  inventory 
in  such  a  situation  because  it  is  difficult  to  supervise  and  control 
merchandise  on  a  shifting-stock  basis.  Unsecured  loans  are  possible 
in  the  right  credit  environment. 

Supermarkets  have  found  bank  loans,  in  the  form  of  short-term 
notes  payable,  to  be  of  significant  help  in  financing  many  activities. 
These  short-term  loans  have  been  used:  (1)  in  the  purchase  of  an 
existing  store  by  a  larger  organization  with  large  cash  flow  from 
sales  so  that  the  loan  can  be  paid  off  shortly,  (2)  as  down  payment 


240  Supermarketing 

on  land,  (3)  for  the  start  of  construction  pending  the  raising  of 
long-term  capital,  (4)  for  purchase  of  equipment,  and  (5)  for  work- 
ing capital.  The  expanding  supermarkets  have  been  wide  users  of 
bank  credit.  There  is  a  trend  toward  increased  current  indebtedness 
in  the  form  of  notes  payable,  including  current  payments  on  long- 
term  indebtedness. 

Long-Term  Indebtedness 

Most  indebtedness  contracted  for  by  members  of  the  supermarket 
industry  has  been  of  a  long-term  nature  in  the  form  of: 

1.  Long-term  notes  payable 

2.  Debentures 

3.  Chattel  mortgages 

4.  Real  estate  mortgages 

Sources  of  long-term  borrowing  are  shown  in  Table  7-2.  Insur- 
ance companies  and  investment  bankers  have  been  the  two  major 
lenders  to  the  large  supermarket  chains.  For  the  small  operators, 
insurance  companies  have  been  the  main  source  of  real  estate  financ- 
ing; commercial  banks  and  finance  companies  have  been  the  prin- 
cipal lenders  for  the  purchase  of  equipment.  One  source  of  long- 
term  financing  available  to  the  small  supermarket  concern  with  an- 
nual gross  sales  less  than  $2,000,000  is  the  Small  Business  Adminis- 
tration. This  governmental  agency  was  organized  to  make  loans  to 
small  business  if  no  credit  is  otherwise  available  from  private  sources 
at  reasonable  rates  of  interest.  These  loans,  which  can  run  for  a 
maximum  of  10  years,  generally  require  a  real  estate  and  chattel 
mortgage  on  all  capital  assets  of  the  business.  From  1953  to  1957 
the  Small  Business  Administration  granted  409  loans  to  food  re- 
tailers totaling  $12,855,000.21  The  main  reasons  for  the  denial  of 
loans  by  the  Small  Business  Administration  were  (1)  the  earning 
ability  of  the  firm  was  not  demonstrated  and  (2)  the  collateral  was 
insufficient. 

21  "Government— Its  Role  in  Financing,"  Cooperative  Merchandiser,  August, 
1958,  p.  17. 


Financial  Factors  141 

Long-term  notes  payable.  A  note  payable  is  a  term  applied  to  a 
promissory  note  with  reference  to  its  maker.22  The  classification 
long-term  liability  refers  to  an  obligation  which  will  not  become 
due  within  a  relatively  short  period,  usually  a  year.  Supers  have 
borrowed  for  expansion  on  long-term  notes  from  institutional  in- 
vestors or  banks.  It  has  been  a  common  practice  for  supermart 
concerns,  particularly  the  chains,  to  borrow  sizable  funds  from  a 
private  source  such  as  an  insurance  company  or  pension  fund.  The 
funds  obtained  have  been  used  for  general  corporate  purposes,  in- 
cluding additions  to  working  capital,  purchase  of  another  concern, 
or  expansion.  Examples  of  promissory  notes  payable,  outstanding 
as  of  December  31,  1958,  include  notes  totaling  $453,316  of  the 
Evans  Grocery  Company  with  13  supers  in  West  Virginia,  Ohio, 
and  Kentucky,  and  note  indebtedness  of  $1,375,000  owed  by  Fisher 
Brothers  Company  with  87  supers  in  the  Cleveland  area. 

Debentures  (bonds).  Debentures  are  securities  not  protected  by 
collateral  or  tangible  assets  but  only  by  the  general  credit  of  the 
issuer.  The  underlying  indenture  may  require  certain  protective 
measures  such  as  the  maintenance  of  a  specified  working  capital 
ratio,  limitations  on  the  amount  of  any  additional  funded  debt,  and 
restrictions  on  dividends  to  stockholders.23  There  is  no  clear-cut 
distinction  between  a  bond  and  a  note  other  than  the  fact  that  the 
latter  generally  means  a  relatively  short-term  obligation,  one  matur- 
ing not  more  than  10  years  after  issuance.24 

While  this  method  of  financing  has  been  used  sparingly  by  one- 
or  few-unit  operators,  many  of  the  larger  supermarket  concerns 
have  sold  debentures  both  publicly  and  privately.  Some  concerns 
have  offered  several  different  issues  of  debentures.  In  addition,  other 
operators  have  used  successfully  the  subordinated  debenture  with 
conversion  or  warrant  privileges.  These  privileges  permit  the  holder 

22  Eric  Kohler,  Dictionary  for  Accountants  (New  York:  Prentice-Hall,  Inc., 
1952),  p.  285. 

23  Ibid.,  p.  136. 

24  B.  A.  Graham  and  D.  L.  Dodd,  Security  Analysis  (New  York:  McGraw- 
Hill  Book  Co.,  Inc.,  1953),  p.  83. 


142  Supermarketing 

to  convert  the  bond  to  capital  stock  at  certain  specified  dates  and 
at  specified  prices.  Certain  insurance  concerns  have  loaned  on  de- 
bentures totaling  as  little  as  $500,000,  but  they  may  require  an  op- 
erator to  furnish  detailed  financial  statistics  for  a  period  of  at  least 
10  years.  On  December  31,  1958,  the  previously  mentioned  Evans 
Grocery  Company  had  $84,162  outstanding  in  10-year  debentures 
issued  to  employees.  One  of  the  largest  users  of  debentures  is  Food 
Fair  Stores,  Incorporated.  As  of  January  1,  1959,  this  concern  had 
outstanding  the  following  long-term  obligations: 

3  per  cent  debentures  due  January  1,  1965         $  5,562,000 
3%  per  cent  debentures  due  September  1, 

1974  $18,750,000 

4  per  cent  convertible,  subordinated  deben- 
tures due  April  1,  1979  $21,203,200 

Chattel  mortgages.  These  are  mortgages  on  personal  property- 
equipment  in  a  super.  Financing  by  chattel  mortgages  has  been 
used  extensively  in  this  industry,  particularly  by  smaller  chains  or 
supers  with  one  store  or  a  few  outlets.  The  large  chains  in  the  main 
have  generated  funds  for  equipment  through  normal  cash  flow  op- 
erations or  have  borrowed  from  banks  or  institutions  on  a  note 
basis. 

Two  principles  of  equipment  financing  are:  (1)  A  particular  fixed 
asset  should  "pay  for  itself"  during  its  useful  life;  and  (2)  Owner- 
ship capital  should  provide  a  portion  of  the  required  financing.  The 
different  types  of  equipment  in  a  supermarket  vary  in  their  useful 
life,  but  the  operators  and  lenders  alike  report  the  maximum  financ- 
ing terms  should  not  exceed  10  years,  preferably  5  to  7  years.  Some 
progressive  banks  that  have  become  familiar  with  the  supermarket 
industry  have  shown  a  willingness  to  extend  loans  longer  than  the 
traditional  36  months,  considered  to  be  a  rule-of-thumb  maximum 
for  equipment  financing  by  banks. 

Repayment  rate  for  chattel  mortgages  can  be  (1)  a  fixed  amount 
payable  monthly  or  quarterly  or  (2)  a  declining  rate  with  a  rapid 
payoff  in  the  early  years  and  nominal  payments  toward  the  end. 


Financial  Factors  143 

The  latter  plan  has  become  more  popular  since  tax  authorities  have 
approved  accelerated  depreciation.  The  two  approved  methods  of 
computing  rapid  depreciation  are  the  "sum-of-the-years-digits"  and 
the  "declining-balance  method."  Equipment  manufacturers  and 
dealers  have  given  wide  publicity  to  the  "pay-as-you-depreciate" 
plans. 

Real  estate  mortgages.  These  are  liens  on  land  or  buildings  given 
by  a  borrower  to  the  lender  as  security  for  his  loan.  When  a  mort- 
gage constitutes  the  security  against  which  bonds  are  issued,  the 
lien  is  conveyed  by  what  is  ordinarily  known  as  a  deed  of  trust. 
Mortgages  can  be  secured  by  a  specific  piece  of  real  estate  or  all 
the  real  estate  property. 

The  basic  method  by  which  a  supermarket  finances  and  owns  a 
new  location  is  simply  to  acquire  the  land,  erect  the  building,  and 
mortgage  the  property  for  about  two-thirds  of  the  total  cost.  On 
the  average,  for  a  new  $200,000  location  a  super  would  tie  up  $70,- 
000  of  its  funds  and  mortgage  the  balance  for  $130,000.  In  some 
cases,  mortgage  money  only  up  to  one-half  of  land  and  building 
costs  is  available. 

A  refinement  of  this  fundamental  method  of  financing  real  estate 
employed  by  some  supermarket  chains  is  the  use  of  a  subsidiary 
corporation.  The  stock  of  the  subsidiary  is  owned  partially  or  en- 
tirely by  the  parent  supermarket.  The  subsidiary  issues  first  mort- 
gage bonds  secured  by  mortgages  on  all  the  properties  and  by  as- 
signment of  the  lease  rentals.  These  bonds  are  legal  investments  for 
a  number  of  institutional  investors  who  otherwise  are  not  interested 
in  single  property  financing.  This  plan  also  has  the  added  attraction 
of  more  diversified  security  behind  the  bonds  since  the  security 
consists  of  a  number  of  properties  with  geographical  spread.  Fur- 
thermore, the  insurance  companies,  which  are  an  important  source 
of  long-term  funds  for  the  supermarket  owner,  are  limited  in  most 
states  by  law  as  to  the  amount  of  fee-owned  real  estate  they  can 
hold.  This  limits  their  capacity  for  direct  leasebacks.  Institutional 
investors  also  are  limited  as  to  the  mortgages  they  may  hold  both 


144  Supermarketing 

as  to  amount  and  location.  The  first-mortgage  bonds  of  a  real  estate 
subsidiary  are  not  limited  to  these  extents  and  also  make  available 
to  the  operator  100  per  cent  financing  of  the  cost  of  a  store.25 

SOURCES  OF  CAPITAL— OWNERSHIP 

Many  of  the  growing  regional  chains  that  started  as  one-store 
units  back  in  the  1930's  entered  the  capital  markets  in  the  postwar 
period  to  procure  funds  for  expansion.  As  a  result  of  public  sale  of 
securities,  their  financial  records  were  revealed.  This  was  the  case 
for  many  of  the  concerns  included  in  Table  7-4.  The  equity  securi- 
ties sold  included  both  preferred  and  common  stock.  The  quest  for 
equity  funds  for  expansion  has  taken  many  forms  and  has  been  a 
constant  problem  in  expansion.26  The  sale  of  equity  securities  also 
has  broadened  the  base  for  borrowing  by  supermarket  operators. 

The  sale  of  preferred  stock,  generally  offering  5  and  6  per  cent 
cumulative  dividends  and  preferable  as  assets  in  case  of  liquida- 
tion, has  been  widely  used  by  over  60  per  cent  of  the  larger  mem- 
bers of  the  industry.  In  fact,  two  issues  of  preferred  stock  were  sold 
by  six  of  37  firms  studied.  However,  preferred-stock  financing  is 
not  limited  to  large  firms.  One  enterprising  operator  sold  preferred 
stock  to  his  customers  in  the  store  literally  "over  the  counter."  Not 
only  did  he  obtain  funds,  but  he  more  or  less  tied  his  customers  to 
the  market.  Care  must  be  taken  in  this  kind  of  operation  to  make 
certain  the  laws  governing  security  sales  are  not  broken. 

The  larger  concerns  that  have  sold  stock  publicly  still  have  man- 
aged to  maintain  control  of  the  business.  Tins  is  possible  because, 
with  a  large  and  widely  held  stock  offering,  a  small  active  manage- 
ment minority  can  control  the  operation.  Some  of  the  smaller  con- 
cerns, perhaps  fearful  of  losing  control,  have  issued  several  forms 
of  common  stock.  The  public  on  occasion  has  been  sold  nonvoting 
securities. 

25  Donohue,  op.  cit. 

26  "Methods  of  Financing  Store  Construction,"  Super  Market  Merchandising, 
XIII,  no.  6,  June,  1946,  p.  66. 


Financial  Factors  145 

PROFITS  ON  EQUITY  CAPITAL 

Net  profits  expressed  as  a  percentage  of  sales  for  the  supermarket 
industry  were  found  in  Chapter  6  to  be  about  a  modest  3  per  cent 
of  sales  before  taxes.  Then  how  can  this  industry  flourish  with  such 
a  relatively  low  profit  rate,  especially  since  it  has  tended  to  decline 
in  the  postwar  era?  The  analysis  of  sales,  cost,  and  profit  relation- 
ships at  various  levels  of  volume  of  the  representative  supermarket 
given  in  Table  7-1  furnishes  the  key  to  one  of  the  most  vital  super- 
marketing  financial  principles.  The  results  of  this  analysis  are  found 
in  Table  7-3. 

Assume  the  representative  supermart  illustrated  in  Table  7-1  is 
a  successful  venture  with  yearly  sales  of  $1,100,000,  profits  of  $33,- 
000,  ownership  capital  of  $164,000,  net  profit  of  3  per  cent  of  sales, 
and  return  on  ownership  capital  of  20.12  per  cent.  Statistics  con- 
tained in  Table  7-3  indicate  what  the  operating  results  of  this  store 
would  be  at  various  volume  levels.  Fixed  costs  (basic  rent,  depre- 
ciation, utilities,  etc.)  are  assumed  at  6  per  cent  of  the  $1,100,000 
volume,  or  $66,000.27  Merchandise  cost  and  variable  operating  ex- 
penses fluctuate  with  sales;  and  in  Table  7-3  these  items  are  81 
per  cent  and  10  per  cent,  respectively.  The  variable  expenses  in- 
clude such  items  as  wages,  stamps,  and  merchandise  handling.  The 
breakeven  point  for  this  store  is  $733,000,  at  which  level  the  sales 
dollar  equals  merchandise  cost  plus  all  operating  expenses. 

Basically  the  supermarket  has  a  low  fixed  cost  and  a  low  break- 
even point  as  compared  with  those  of  heavy  industry.  These,  along 

27  The  6  per  cent  fixed  expense  figure  was  established  jointly  with  Everett 
Mann,  C.P.A.,  and  former  professor  of  accounting,  Emory  University,  afer  an 
analysis  of  operations  at  different  levels  of  volume  for  several  supermarket  firms. 
This  figure  involved  certain  assumptions  in  classifying  expenses  as  either  fixed 
or  variable.  Fixed  expenses  are  not  absolutely  constant  in  a  supermarket  inas- 
much as  certain  expenses  listed  in  this  category,  such  as  utility  expense,  could 
be  curtailed  if  the  volume  shrank  materially.  In  addition,  all  variable  expenses 
do  not  vary  absolutely  with  sales.  Discontinuities  develop  in  certain  production 
services;  for  example,  an  additional  check-out  stand  may  be  needed  but  yet 
may  not  be  used  at  maximum  efficiency  when  added.  By  allowing  for  these 
factors  and  assumptions,  the  relationships  established  are  believed  accurate  for 
use  in  the  analysis  of  breakeven  operations. 


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Financial  Factors  147 

with  other  factors,  allow  concerns  to  pioneer  markets  in  new,  grow- 
ing locations.  At  the  outset,  the  market  can  still  be  profitable  if  the 
sales  result  is  considerably  below  the  future  expected  volume  or  if 
the  actual  volume  is  considerably  in  error  on  the  low  side  from  the 
sales  forecast.  As  volume  at  a  location  rises,  the  profit  percentage 
increases  substantially.  From  a  breakeven  point  at  $733,000  sales, 
the  results  in  Table  7-3  show  that  at  a  $1,300,000  volume,  the  margin 
is  3.92  per  cent  of  sales.  In  turn,  as  a  competitor  encroaches  on  the 
market  of  a  store,  the  original  super  still  can  suffer  a  considerable 
volume  decline  and  remain  profitable. 

A  business  with  high  fixed  expenses,  like  the  steel  industry,  des- 
perately needs  added  sales.  Why  then  has  the  supermarket  striven 
for  large  volume  per  store,  since  its  fixed  expenses  are  low  and  since 
the  net  profit  tends  to  increase  at  a  decreasing  rate?  As  sales  rose 
from  $800,000  to  $900,000,  according  to  the  figures  in  Table  7-3,  the 
profit  rose  from  $6,000  to  $15,000,  an  increase  of  150  per  cent.  As 
sales  rose  from  $900,000  to  $1,000,000,  net  earnings  rose  from  $15,- 
000  to  $24,000,  an  increase  of  only  60  per  cent. 

The  answer  commonly  advanced  is  that  even  though  the  profit 
margin  is  modest,  it  becomes  a  sizable  dollar  amount  when  related 
to  a  large  volume.  This  is  true  as  evidenced  by  the  data  in  Table  7-3 
for  the  representative  super  at  its  $1,100,000  volume.  However,  this 
is  only  a  partial  answer  to  the  super  s  success.  Actually,  for  a  given 
market,  the  profit  margin  and  the  absolute  dollar  profit  rise  with  an 
increase  in  sales  and  will  continue  to  do  so  until  some  added  fixed 
expense  is  incurred,  which  may  result  eventually  because  the  market 
could  outgrow  its  present  facilities.  The  market  shown  by  the  data 
in  Table  7-3  earns  $33,000,  or  3  per  cent,  at  a  volume  of  $1,100,000; 
but  at  the  $1,300,000  level,  profits  increase  to  $51,000,  or  3.92  per 
cent.  Furthermore,  profit  expressed  as  a  percentage  of  net  worth 
rises  consistently  and  rapidly  with  volume.  Profit  as  a  percentage  of 
net  worth  was  20.12  per  cent  at  the  $1,100,000  level;  but  at  the  $1,- 
300,000  volume,  the  rate  rose  to  31.10  per  cent.  Profit  as  a  percentage 
of  net  worth  is  further  aided  by  the  high  degree  of  leverage  in  the 
industry  and  by  the  policy  of  leasing  fixed  assets.  Herein  lies  the  key 
to  financial  success  of  supermarket  operation. 


148  Supermarketing 

From  the  viewpoint  of  management  and  store  personnel,  this  in- 
crease in  volume,  with  the  resulting  increase  in  net  profit  percentage 
on  sales  and  equity,  is  vital.  For  example,  consider  the  data  of  the 
representative  super  in  Table  7-1.  If  one  additional  family  that 
spends  $1,000  per  year  can  be  induced  to  shop  at  that  super  as  a  re- 
sult of  the  promotional  effort,  that  marginal  family  will  reflect  the 
following  changes  in  operating  results: 

Sales $1,101,000 

Fixed  cost 66,000 

Cost  of  sales 891,800 

Variable  cost 110,100 

Total  cost 1,067,900 

Net  profit 33,100 

Profit  as  a  %  of  sales 3.01 

Profit  as  a  %  of  net  worth    ....  20.18 

Simply,  this  marginal  family  to  the  store  is  worth  0.01  per  cent 
increase  in  net  profit  on  sales  and  0.06  per  cent  increase  in  net  profit 
on  equity.  The  marginal  family  appears  highly  significant  and  can 
have  a  double-edged  effect.  A  loss  of  a  customer  can  drop  profits 
just  as  the  addition  of  one  can  increase  return. 

RESULTS  OF  THE  ANALYSIS  OF  CERTAIN  FINANCIAL 
STATEMENTS  OF  SUPERMARKET  CHAINS 

The  preceding  discussion  has  indicated  the  large  financial  re- 
quirements of  a  single  supermarket,  the  risk  involved  in  pioneer- 
ing new  locations,  the  relatively  specialized  type  of  equipment  and 
building,  and  the  problem  of  obtaining  capital.  These  appear  as  de- 
terrents to  expansion.  However,  the  industry  has  grown.  Profits  as 
a  percentage  of  sales  have  been  modest.  But  what  have  the  earn- 
ings on  the  investment  been  for  actual  concerns? 

Inasmuch  as  balance  sheet  statistics  based  on  an  industry  study 
are  not  available,  the  financial  statements  of  selected  supermarket 
chains,  which  operated  6,379  stores  out  of  the  17,024  units  in  1956, 
were  studied.  These  revealed  certain  common  characteristics.  It  is 
not  to  be  inferred  that  these  results  were  typical  of  the  entire  indus- 
try. The  findings  from  this  study  presented  in  Table  7-4,  when  re- 


Financial  Factors  149 

lated  to  the  previous  financial  discussion,  revealed  the  following 
data: 

1.  A  large  rate  of  return  on  the  investment  was  realized  by  the 
owners.  For  the  year  1950  the  highest  return  was  that  for  Colonial 
Stores,  with  a  net  profit  before  taxes  of  34  cents  on  every  dollar  of 
owner's  equity.  In  1956  Market  Basket  earned  44  per  cent  on  its 
equity.  In  the  postwar  years  the  rates  of  return  on  ownership  funds 
have  been  consistently  large.  A  high  rate  of  return  has  been  reported 
typical  of  this  industry  but  has  not  been  regarded  excessive  in  view 
of  the  risks  involved.28  A  favorable  profit  showing  has  been  held 
essential  for  expansion  financed  from  earnings  and  creditor's 
funds. 

2.  The  trend  has  been  toward  larger  indebtedness  as  compared 
with  the  net  worth.  In  many  cases  studied,  owners  and  creditors  in 
the  postwar  era  had  almost  equal  funds  invested.  The  owners  tended 
to  "trade  on  the  equity"  fully.29  By  this  policy  of  profitably  control- 
ling and  using  larger  resources  than  their  own  funds  permitted, 
supermarket  operators  were  able  to  get  large  returns  on  their  invest- 
ment. The  relative  stability  of  this  type  of  business,  food,  enabled 
large  borrowing. 

3.  There  was  a  limited  use  of  suppliers'  funds  to  finance  the  in- 
ventory, although  the  trend  is  toward  a  heavier  current  debt  as  com- 
pared with  the  inventory.  The  increase  in  current  debt  is  accounted 
for  largely  by  borrowing  on  a  short-term  note  basis  for  current  ex- 
pansion funds. 

4.  The  bulk  of  the  debt  has  been  of  a  fixed  nature  in  connection 
with  the  acquiring  of  new  outlets,  the  remodeling  of  existing  units, 
and  the  rising  equipment  needs. 

5.  There  has  been  a  trend  toward  financing  new  store  buildings 
by  many  of  the  companies.  Inventory  represents  less  of  the  total  as- 
sets, and  a  greater  percentage  of  fixed  assets  to  total  assets  has  been 

28  "Methods  of  Financing  Store  Construction,"  Super  Market  Merchandising, 
op.  cit. 

29  Use  of  borrowed  funds  or  stock  with  a  limited  return  is  known  as  trading 
on  equity.  See  Harry  G.  Guthmann  and  Herbert  E.  Dougall,  Corporate  Finan- 
cial Policy  (New  York:  Prentice-Hall,  Inc.,  1955),  p.  99. 


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Financial  Factors  151 

noted.  Most  concerns  in  the  postwar  era  had  larger  net  asset  hold- 
ings in  equipment  and  buildings  than  in  merchandise. 

SUMMARY 

In  summary,  a  modern  supermarket  is  not  a  small  business.  The  trend 
has  been  toward  larger  assets  per  store.  Even  the  minimum-volume  supers 
require  a  sizable  outlay  compared  with  that  of  the  economy  stores  of  the 
late  1920's.  Rising  equipment  needs  and  costs  plus  the  trend  toward 
building  in  outlying  locations  have  necessitated  larger  investments  in 
fixed  assets.  Finding  suitable  quarters  to  rent  has  been  a  problem,  par- 
ticularly in  the  postwar  period.  Capital  for  expansion  has  been  needed 
and  obtained  from  many  sources  including  the  capital  markets.  These 
issues  were  met  when  the  sizable  profit  possibilities  of  the  industry  were 
discerned.  However,  the  trend  toward  real  estate  acquisitions  has  mili- 
tated against  profits  to  some  extent,  and  management  must  assess  whether 
supers  are  in  the  merchandising  or  real  estate  business.  Finally,  once  a 
given  location  is  established,  there  is  a  wide  latitude  in  volume  over  which 
a  store  can  operate  and  still  be  profitable.  However,  the  sales  and  cost 
structures  in  this  industry  are  such  that  increased  volume  augments  con- 
siderably the  profit  rate  expressed  as  a  percentage  of  sales  and  enhances 
substantially  the  profit  rate  expressed  as  a  percentage  of  net  worth. 


8 


EARLY  SUPERMARKET 
IMPACT  ON  THE 
FOOD  STORE  INDUSTRY 


INTRODUCTION 

The  development  of  the  supermarket  industry  and  the  factors  re- 
sponsible for  its  innovation  and  growth  have  been  presented  in  the 
seven  preceding  chapters.  It  is  the  purpose  of  this  and  the  subse- 
quent three  chapters  to  examine  the  influence  that  the  supermarket 
industry  has  tended  to  exert  on  the  food  and  allied  industries.  The 
approach  is  to 

1.  Study  qualitatively  the  early  supermarket  impact  on  small  com- 
bination markets  and  grocery  stores  in  the  Los  Angeles  area  and 
the  East. 

2.  Follow  quantitatively  the  movement  of  the  large  food  chains 
toward  supermarket  operation,  with  special  reference  to  the  Great 
Atlantic  and  Pacific  Tea  Company. 

3.  Measure  the  strong  trend  within  the  supermarket  industry  to- 
ward horizontal  integration  in  the  post- World  War  II  era. 

4.  Measure  statistically  the  changes  in  the  over-all  pattern  of 
food  store  sales  in  the  year  1958  as  compared  with  that  of  1929. 

This  chapter  examines  qualitatively  the  early  supermarket  impact 
and  the  movement  of  the  large  food  chains  toward  supermarket 
operation.  The  importance  of  early  impact  is  that  ( 1 )  it  offers  a  key 
to  shifts  and  trends  in  the  pattern  of  food  store  sales  that  were  to 
152 


Early  Supermarket  Impact  on  the  Food  Store  Industry  153 

follow,  and  (2)  it  furnishes  a  better  understanding  of  the  statistical 
analysis  in  which  the  1958  pattern  is  compared  with  1929. 

LOS  ANGELES  AREA  SUPERMARKETS 

Supermarts  conforming  to  our  definition  in  this  book  were  in  op- 
eration in  the  late  1920's  in  California,  particularly  in  Los  Angeles. 
One  source  estimated  the  number  of  supermarkets  in  the  Los  An- 
geles area  as  follows:  x 

1929 25 

1930 39 

1931 51 

1932 79 

1933 103 

From  1929  to  1933  the  estimated  volume  for  these  stores  rose  from 
$3,500,000  to  $22,000,000,  an  increase  of  nearly  600  per  cent. 
Another  source  indicated  as  follows: 

No  attention  was  paid  to  the  first  super  market  in  the  Los  Angeles  area 
about  five  years  ago  (1928)  or  the  increase  in  the  number  of  such  markets 
up  to  nearly  250,  including  about  200  large  "drive-ins."  Returning  travelers 
now  say  they  are  amazed  at  the  size  and  beauty  of  the  super  markets  in 
Southern  California,  at  their  attractive  methods  of  display  and  their 
clever  merchandising  stunts.  They  are  crowded  all  day,  drawing  trade 
from  a  radius  of  eighty  blocks  away  and  do  approximately  40  per  cent  of 
the  total  grocery  business  of  the  territory.  Leaving  30  per  cent  each  to  the 
chains  and  independents  has  made  pretty  hard  going  for  the  chain  stores.2 

A  third  source  is  quoted  as  follows : 

One  of  the  directing  heads  of  a  large  food  company  recently  showed 
Printers  Ink  some  figures  received  from  an  authentic  source  in  Los  An- 
geles. These  show  that  a  year  ago  (1932)  there  were  160  market  stores 
in  Los  Angeles,  while  today  (1933)  there  are  260  such  stores.  It  is  esti- 
mated these  stores  are  doing  about  35  per  cent  of  the  food  volume  of  Los 
Angeles.  .  .  .  The  500  chain  stores  are  getting  about  21V£  per  cent.  The 
remaining  44^  per  cent  is  going  to  about  3300  independent  stores,  which 

1  M.  J.  Rowaldt,  "Inside  Figures  of  a  Los  Angeles  Super,"  Progressive  Grocer, 
XVI,  no.  1,  January,  1937,  p.  43. 

2  H.  M.  Foster,  "Threat  of  the  Supermarket,"  Sales  Management,  XXXII,  no. 
9,  April  20,  1933,  p.  436. 


154  Supermarketing 

is  approximately  close  to  the  volume  that  those  independents  have  been 
doing  right  along.3 

This  same  source  also  indicated  that  several  years  earlier  only  14 
per  cent  of  the  food  store  sales  had  been  transacted  by  supers,  while 
the  small  independents  transacted  about  44  per  cent  of  the  total  food 
store  volume.  These  statistics  indicate  the  sales  these  "market  stores" 
gained  at  the  expense  of  the  chain  stores. 

Another  writer  indicated  the  presence  of  104  large  drive-in  "mar- 
ket stores,"  as  they  were  called  in  the  Los  Angeles  area,  on  January 
1,  1929.4  People  drove  to  these  outlets  in  such  numbers  that  the  de- 
velopment of  these  "market  stores"  had  a  depressing  effect  on  the 
chains.  In  an  effort  to  join  the  movement,  chain  stores  took  over 
some  of  the  departments  in  these  large  drive-in  markets.5 

In  summary,  writers  at  this  time  were  of  the  opinion  that  these 
large  "market  stores"  captured  in  a  relatively  short  time  a  notice- 
able portion  of  the  grocery  and  combination  market  sales  in  the  Los 
Angeles  area.  This  was  largely  at  the  expense  of  the  chains.  While 
other  rough  estimates  on  the  depth  of  penetration  varied,  they 
judged  that  by  1933,  supermarket  sales  were  about  35  to  40  per  cent 
of  the  available  grocery  store  and  combination  market  volume. 

INVASION  OF  THE  EAST  BY  THE  "CHEAPY" 
SUPERMARKET 

The  wide  publicity  and  uproar  that  accompanied  the  opening  of 
the  Big  Bear  Market  in  Elizabeth,  New  Jersey,  led  independent 
grocers  and  chains  alike  to  recognize  this  menace.6  Although  the 
super  was  considered  a  depression  product,  they  sought  to  eradi- 
cate it.  But  the  Big  Bear  fought  back  and  made  headline  news, 

3  C.  B.  Larrabee,  "Grocery  Manufacturers  Condemn  Supermarket  Price  Cut- 
ters," Printers  Ink,  CLXII,  no.  9,  March  2,  1933,  p.  41. 

4  Walter  Van  de  Kamp,  "An  Innovation  in  Retail  Selling,"  Magazine  of  Busi- 
ness, July,  1929,  p.  28. 

5  S.  L.  Brevit,  "Drive-In  Department  Store  Gaining  Popularity  in  the  West," 
Sales  Management,  XXX,  no.  3,  January  17,  1931,  p.  118. 

6  M.  M.  Zimmerman,  Super  Market  Spectacular  Exponent  of  Mass  Distribu- 
tion (New  York:  Super  Market  Publishing  Co.,  1937),  p.  27. 


Early  Supermarket  Impact  on  the  Food  Store  Industry  155 

while  Giant  Tigers,  Big  Chiefs,  and  a  host  of  other  similarly  named 
"cheapy"  supers  multiplied  in  many  parts  of  the  country.7 

Briefly,  the  following  tactics  were  used  to  oppose  the  Big  Bear 
Market,  with  pressure  originating  from  both  independents  and  chain 
operators:  8 

1.  A  local  drive  was  initiated  to  license  all  retail  stores,  with  the 
implication  of  refusing  to  license  supermarkets. 

2.  Parking  limitations  were  imposed  against  the  supers. 

3.  Many  annoying  small  local  ordinances  were  imposed  against 
the  Big  Bear. 

4.  Union  pickets  had  relatively  free  play. 

5.  Newspapers  were  coerced  into  refusing  to  carry  Big  Bear  ads. 

6.  The  State  Retail  Association  attempted  to  push  through  legis- 
lation in  New  Jersey  that  would  curb  Big  Bear  and  other  supermar- 
kets. 

7.  The  Associated  Manufacturers  of  America  of  Grocery  Products 
drafted  a  bill  to  be  introduced  in  all  state  legislatures  against  price 
cutting.  Provisions  of  this  bill,  "An  Act  to  Protect  Intrastate  Com- 
merce Against  Unfair  Price  Competition,"  included  the  following: 

a.  The  term  unfair  price  competition  means  the  advertisements 
or  offer  of  an  article  of  merchandise  at  or  below  its  purchase 
price  in  the  course  of  intrastate  commerce. 

b.  Unfair  price  competition  is  unlawful  and  violators  shall  be 
guilty  of  a  misdemeanor  and  if  convicted,  suffer  penalty. 

c.  The  Attorney  General's  duty  is  to  prosecute  in  the  proper  state 
courts. 

d.  Any  person  injured  by  unfair  price  competition  which  is  out- 
lawed by  this  act  may  sue  and  shall  receive  three-fold  damages 
sustained  plus  costs  of  the  suit. 

But  all  these  legal  maneuvers  were  in  vain.  Supermarkets  mush- 
roomed; nationally  advertised  brands  continued  on  sale  in  the  stores; 
known  brands  of  merchandise  were  purchased  in  many  instances 
directly  from  the  manufacturers.  Even  wholesalers  started  to  sponsor 

Ubid. 

8  Foster,  op.  cit.,  p.  437. 


156  Supermarketing 

their  own  supermarkets  or  to  work  in  close  relationship  with  supers 
on  narrow  cost-plus  arrangements.9 

THE  SMALL  INDEPENDENT  GROCER  VERSUS 
THE  "CHEAPY"  SUPERMARKET 

The  "cheapy"  supermarkets  in  this  early  period  did  not  exist  in 
sufficient  numbers  to  affect  appreciably  the  national  sales  of  the 
small  independent  grocers  as  a  group.  Data  for  the  years  1929  and 
1935,  as  shown  in  Table  8-1,  indicate  that  ( 1 )  the  number  of  large- 

TABLE  8-1  * 

Statistics  on  the  Number  and  Volume  of  Sales  of  Large  Combination 

Markets  in  the  United  States  for  the  Years  1929  and  1935 

(in  thousands). 


Dollar 

192£ 

) 

1935 

sales  volume 
classification 

Number 

Sales 
volume 

Number 

Sales 
volume 

300,000  to  499,999 
500,000  to  999,999 
1,000,000  and  over 

58 
20 

2 

80 

$21,492 

13,083 

6,641 

264 
100 

25 

389 

$  97,253 
66,915 
39,119 

Total  f 

$41,216 

$203,287 

*  U.S.  Bureau  of  Census,  Census  of  Business,  1935,  Retail  Distribution  Part 
II,  Vol.  1,  Government  Printing  Office,  Washington,  D.C.,  pp.  2-21. 

f  These  figures  give  the  closest  census  statistics  on  the  number  of  supermar- 
kets existing  in  this  period.  No  other  statistics,  even  from  private  sources,  were 
available.  These  data  underestimate  slightly  the  number  of  supermarkets,  inas- 
much as  the  accepted  definition  in  this  thesis  includes  markets  with  $250,000 
sales  volume  and  up. 

volume  combination  markets  increased  from  80  to  389,  and  ( 2 )  their 
sales  volume  rose  from  $41.2  million  to  $203.3  million.  Yet  this  $203.3 
million  volume  of  the  large  combination  markets  was  only  2  per  cent 
of  the  total  food  store  sales  of  the  country,  which  totaled  $9.71  bil- 
lion in  1935.10 

In  the  many  sections  of  the  country  where  "cheapies"  failed  to 

9  Zimmerman,  op.  cit.,  p.  29. 

10  U.S.  Bureau  of  the  Census,  1951  Statistical  Supplement,  Survey  of  Current 
Business,  Government  Printing  Office,  Washington,  D.C.,  1952,  p.  25. 


Early  Supermarket  Impact  on  the  Food  Store  Industry  157 

open,  the  battle  of  the  chains  versus  the  independents  still  waged. 
The  widely  publicized  supermarket  was  regarded  as  a  depression 
product  which  would  soon  disappear.11  But  in  the  areas  adjacent  to 
operating  supermarkets,  independent  grocery  stores  and  small  com- 
bination markets  suffered  losses  in  volume.  Some  independents,  after 
the  advent  of  the  supermarket,  reported  losses  of  30  to  40  per  cent 
of  sales  volume.12  It  was  in  these  areas  that  grocers  reviewed  their 
operating  policies. 

Certain  of  the  choices  open  to  the  independent  grocers  were  to 

1.  Join  the  movement  toward  supermarket  operation. 

2.  Control  expenses  closely. 

3.  Switch  to  self-service  or  partial  self-service. 

4.  Improve  the  service  and  try  more  to  please  the  customers. 

5.  Add  meats  and  switch  to  combination  market  operation. 

6.  Join  cooperatives  or  buying  associations  for  the  purchase  of 
staples  at  low  prices  in  order  to  compete  with  the  supers  and  the 
chains. 

7.  Work  with  wholesalers  closely  on  a  variety  of  plans  in  order  to 
cut  distribution  costs. 

8.  Shift  the  hours  of  operation. 

In  reviewing  the  early  impact  of  the  "cheapy"  supermarket,  it  can 
be  concluded  that  the  small  independent  grocer  lost  in  sales  vol- 
ume upon  competition  with  a  nearby  supermart.  Generally,  the 
closer  the  independent  was  to  the  super,  the  greater  the  loss;  and 
some  "cheapy"  supers  drew  customers  from  as  far  as  50  miles  away.13 
Not  only  did  the  independents  covered  here  lose  upon  competing 
with  nearby  supermarkets,  but  the  chains  which  are  reviewed  in  the 
next  section  also  lost. 

FOOD  CHAINS  VERSUS  THE  "CHEAPY"  SUPERMARKET 

To  review  briefly  the  history  of  the  supermarkets,  the  chain  stores 
were  not  the  innovators  of  the  supermart,  according  to  Malcolm 

11  Foster,  op.  cit.,  p.  436. 

12  Zimmerman,  op.  cit.,  p.  44. 

13  Ibid. 


158  Supermarketing 

P.  McNair.14  In  fact  they  were  slow  in  adopting  its  format.  Chains 
had  developed  a  system  of  economy  stores  located  close  to  the  cus- 
tomer; these  stores,  except  for  differences  in  color  and  layout,  were 
modeled  after  each  other.  Gradually  in  the  late  1920's  chains  began 
to  add  meats;  some  offered  services  such  as  credit  and  delivery,  did 
local  advertising,  and  maintained  all-day  operations.  These  attempts 
at  differentiation  were  quickly  limited  by  competing  chains.15  The 
dominant  chain,  the  Great  Atlantic  and  Pacific  Tea  Company, 
boasted  13  per  cent  of  all  grocery  store  and  combination  market 
sales  in  1929.16 

Suddenly  their  price  advantage  was  stolen  from  them  by  the 
"cheapy"  supermarket.  The  alacrity  with  which  the  large  super 
chains  rallied  to  shift  operations  varied  among  the  leaders.  In  1935 
the  Kroger  Company  met  competition  in  its  home  town  of  Cincin- 
nati from  the  Albers  Supermarkets  by  operating  supers  under  the 
name  of  Pay'n  Takit.  On  the  Pacific  coast,  Safeway  Stores,  Incorpo- 
rated, closed  more  than  70  of  the  Piggly  Wiggly  units  purchased 
several  years  previously,  abandoned  more  than  250  of  its  other 
smaller  units,  and  replaced  them  with  supermarkets.  First  National 
Stores  in  the  New  England  region  started  toward  supermarket  op- 
eration in  1937. 

Statistics  on  the  total  number  of  stores  of  the  five  largest  volume 
food  chains  for  the  years  1934  to  1940  are  included  in  Table  8-2. 
Each  company  reduced  the  number  of  stores  it  operated.  During  the 
same  interval  the  total  dollar  volume  for  these  concerns  increased, 
as  shown  by  the  statistics  in  Table  8-3.  While  the  figures  do  not 
specifically  indicate  the  number  of  supermarkets,  they  represent  an 
over-all  movement  to  close  small  economy  stores  and  replace  them 
with  fewer  but  larger  units  of  the  supermarket  type. 


14  Testimony  given  at  the  trial,  United  States  v.  The  Great  Atlantic  ir  Pacific 
Tea  Company,  U.S.  Circuit  Court  of  Appeals,  7th  district,  Docket  9221,  Records 
and  Briefs,  Vol.  II,  p.  194. 

15  T.  N.  Beckman  and  H.  C.  Nolen,  The  Chain  Store  Problem  (New  York: 
McGraw-Hill  Book  Co.,  Inc.,  1938),  p.  137. 

16  Sales  for  A  &  P  in  1929  were  $1.04  billion;  grocery  store  and  combination 
market  sales  in  1929  were  $7.4  billion.  See  Table  8-5. 


Early  Supermarket  Impact  on  the  Food  Store  Industry  159 

TABLE  8-2  * 

Number  of  Stores  in  the  Five  Largest  Food  Chains  for  the 
Years  1934  to  1940. 


1934 

1935 

1936 

1937 

1938 

1939 

1940 

A  &  P 

14,716 

14,610 

14,446 

13,058 

10,671 

9,021 

7,073 

Kroger  Co. 

4,352 

4,250 

4,212 

4,212 

3,992 

3,958 

3,727 

Safeway  Stores 

3,228 

3,330 

3,370 

3,327 

3,227 

2,967 

2,671 

American  Stores 

2,859 

2,826 

2,816 

2,620 

2,416 

2,272 

2,157 

First  National  Stores 

2,623 

2,556 

2,473 

2,350 

2,244 

2,137 

1,923 

*  Moody's  Industrial  Manuals,  1935,  1936,  1937,  1938,  1939,  1940,  and  1941. 


TABLE  8-3  * 

Sales  for  the  Five  Largest  Volume  Food  Chains  for  the 
Years  1934,  1937,  and  1940  (in  millions). 


Company 

1934 

1937 

1940 

A&  P 

$820 

$907 

$990 

Safeway  Stores 

242 

381 

399 

Kroger  Co. 

221 

242 

258 

American  Stores 

114 

115 

124 

First  National  Stores 

105 

120 

131 

*  Moody's  Industrial  Manual,  1941. 

The  remainder  of  this  chapter  is  concerned  with  the  detailed  re- 
action of  the  Great  Atlantic  and  Pacific  Tea  Company  to  the  super- 
market development.  The  general  practices  adopted  by  this  indus- 
try leader  have  appeared  to  be  in  line  with  those  of  the  other  large 
food  chains.  All  the  food  chains  were  confronted  by  the  supermarket 
development;  all  followed  the  same  common  policy  of  eliminating 
small  stores  and  opening  supermarkets;  they  differed  only  in  the 
speed  of  change-over.  In  this  respect  A  &  P  tackled  the  problem  of 
conversion  at  a  rate  more  accelerated  than  that  of  any  of  the  big 
concerns. 


160  Supermarketing 

THE  CASE  OF  THE  GREAT  ATLANTIC  AND  PACIFIC 
TEA  COMPANY 

In  the  subsequent  text,  an  examination  of  A  &  P's  reaction  to  the 
supermarket  invasion  is  presented  in  detail. 

Initial  Attention  Given  Supermarkets  by  A  &  P 

John  A.  Hartford,  president  of  The  Great  Atlantic  and  Pacific  Tea 
Company,  testified  that  his  attention  was  first  brought  to  super- 
markets by  the  operation  of  King  Kullen  in  the  East  Division 17  of 
A  &  P.18  In  February,  1934,  the  Central  Division  Executive  Commit- 
tee minutes  reported  the  opening  of  a  supermarket  in  Columbus, 
Ohio,  by  a  former  A  &  P  employee.19 

In  the  New  England  Division  between  1930  and  1934,  a  great 
many  independent  supermarkets  were  organized.  These  independ- 
ents operated  at  a  much  lower  expense  rate  than  the  A  &  P  stores, 
and  their  lower  operating  costs  were  reflected  in  lower  prices.20  Dur- 
ing 1935  the  Great  Bear  and  Giant  Tiger  supermarket  chains  were 
expanding  in  the  Southern  Division. 

In  the  Central  Western  Division  of  the  A  &  P  structure,  sales  had 
fallen,  and  the  gross  profit  rate  was  considerably  higher  than  the 
gross  margin  of  the  supermarket  competitors  according  to  Di- 
vision President  Toolin.21  He  took  John  A.  Hartford  on  a  tour  of 
Detroit  in  1934  and  showed  him  what  competition  had  done  in  the 
way  of  opening  supermarkets.  Toolin  convinced  President  Hartford 
that  A  &  P  should  change  its  mode  of  operation;  but  others  in  high 
authority  still  thought  the  supermarket  was  temporary.  They  further 
believed  that  the  outstanding  operating  record  of  the  supers  was 
obtained  by  selling  under  cost  and  that  A  &  P  should  not  sell  below 
cost;  therefore  they  opposed  this  type  of  operation.22 

17  In  order  to  facilitate  control  of  this  food  giant,  the  management  divided 
the  company  into  six  regional  operation  divisions. 

18  U.S.  v.  The  Great  Atlantic  6-  Pacific  Tea  Co.,  op.  cit.,  p.  194. 

19  Ibid.,  p.  195. 

20  Ibid.,  p.  196. 
si  Ibid.,  p.  198. 

22  Ibid. 


Early  Supermarket  Impact  on  the  Food  Store  Industry  161 

Number  of  Unprofitable  A  &  P  Stores  in  the  1930's 

That  the  management  of  the  world's  largest  food  retailer  was 
cognizant  of  the  supermarket  is  evident.  At  first  the  wide-scale  op- 
erations of  the  A  &  P  mitigated  the  supermarket  influence;  but  as  the 
supers  increased,  the  number  of  unprofitable  A  &  P  stores  steadily 
mounted,  as  shown  by  the  figures  in  Table  8-4.  The  peak  number  of 
unprofitable  units  in  the  history  of  the  A  &  P  was  reached  in  1937 
when  one-third,  or  4,382  stores,  of  the  13,264  outlets  were  in  the 
red.  But  the  substantial  change  in  operation  that  took  place  from 
1937  to  1941  literally  wiped  out  small  unprofitable  units. 


TABLE  8-4 

* 

Total  Number  of  Stores  and  Number  of  Unprofitable 

Units 

of  the  A  &  P  Co.  for  the  Years  1933  to 

1941. 

Number  of 

%  of 

Number  of 

unprofitable 

i 

mprofitable 

Year 

stores 

stores 

to  total 

1933 

15,095 

3,060 

20.0 

1934 

14,995 

3,871 

25.8 

1935 

14,885 

3,651 

24.7 

1936 

14,697 

3,467 

23.6 

1937 

13,264 

4,382 

33.3 

1938 

10,827 

2,354 

21.7 

1939 

9,088 

1,619 

17.5 

1940 

7,143 

889 

12.4 

1941 

6,165 

639 

10.3 

*  United  States  v.  The  Great  Atlantic  and  Pacific  Tea  Company,  U.S.  Circuit 
Court  of  Appeals,  7th  district,  Docket  9221,  Records  and  Briefs,  Vol.  1,  p.  291. 

A  &  P  Loss  in  Relative  Sales  Position 
Among  the  Food  Stores 

The  economy  store  operation  of  the  A  &  P  reached  its  zenith  in 
1930,  at  which  time  the  company  operated  15,422  stores  in  the 
United  States.  Volume  attained  a  peak  of  $1,049  billion,  as  shown 
by  the  statistics  in  Table  8-3.  From  then  until  the  company  con- 
verted to  supermarket  operation,  the  trend  in  volume  of  sales  was 
downward.  For  example,  the  vice-president  of  the  Eastern  Division 


162  Supermarketing 

indicated  that  prior  to  1930,  A  &  P  had  a  very  profitable  operation 
in  the  Brooklyn  unit.23  But  from  1930,  when  supermarkets  were  first 
opened  by  independents,  there  began  a  steady  downward  trend  in 
the  competitive  position  which  was  a  direct  result  of  supermarket 
competition.  Sales  in  the  Brooklyn  unit  dropped  from  $39,400,000 
in  1930  to  $25,400,000  in  1937;  during  the  same  period  profits 
dropped  from  $1,200,000  in  1930  to  a  $400,000  loss  in  1937. 

In  the  Central  Western  Division,  Albers,  a  supermarket  chain, 
started  about  1934.  After  two  years  Albers,  with  only  eight  super- 
markets, enjoyed  9.5  per  cent  of  the  food  store  business  in  Cincin- 
nati; the  A  &  P  volume  transacted  by  50  stores  had  dwindled  to  7.7 
per  cent  of  the  food  store  sales.24 

The  statistics  in  Table  8-5  further  evidence  the  loss  of  the  A  &  P 
competitive  position.  These  figures  indicate  that  the  sales  of  A  &  P 
dropped  from  $1,039,000,000  in  1929  to  $864,000,000  in  1937,  a  de- 
crease of  17  per  cent;  total  grocery  store  and  combination  market 
sales  in  the  nation  decreased  from  $7.35  billion  to  $7.25  billion,  a  re- 
duction of  1.4  per  cent.  In  terms  of  total  food  store  sales,  which  in- 
clude the  specialty  food  shops  as  well  as  the  grocery  stores  and  com- 
bination markets,  the  A  &  P  loss  in  relative  position  also  was 
pronounced. 

A  &  P  Experimental  Supermarkets 

One  of  the  unsolved  questions  that  confronted  the  management 
of  this  mighty  food  chain  was  the  true  operating  costs  of  a  super- 
market. A  &  P  had  adhered  to  the  principle  of  not  selling  merchan- 
dise at  a  price  less  than  cost;  and  the  management  questioned 
whether  the  competing  independent  supers  could  actually  sell  mer- 
chandise at  such  cheap  prices  and  still  obtain  a  profit. 

In  the  spring  of  1935  the  Central  Western  Division  opened  a 
supermarket  in  Paducah,  Kentucky,  and  attempted  to  operate  at  a 
gross  margin  of  13  per  cent  and  a  net  profit  of  2  per  cent.25  Next, 
14  stores  were  opened  in  Nashville,  Tennessee,  and  offered  lower 

23  ibid.,  p.  195. 

24  ibid. 

25  ibid.,  Vol.  VI,  p.  240. 


Early  Supermarket  Impact  on  the  Food  Store  Industry  163 

TABLE  8-5 


Total  Sales  of  A  &  P,  All  Grocery  and  Combination  Markets 
and  All  Food  Stores  for  the  Years  1929  to  1943. 


Total 

grocery  and 

combination 

Total  food 

Number 

Dollar  volume  * 

store  sales  f 

store  sales  f 

Year 

of  stores  * 

(in  billions) 

(in  billions) 

(in  billions) 

1929 

15,150 

$1.04 

$  7.4 

$11.0 

1930 

19,422 

1.05 

— 

— 

1931 

15,371 

0.99 

— 

— 

1932 

15,108 

0.85 

— 

— 

1933 

14,818 

0.80 

— 

— 

1934 

14,716 

0.83 

— 

— 

1935 

14,610 

0.86 

6.4 

8.4 

1936 

14,446 

0.89 

6.8 

9.0 

1937 

13,058 

0.86 

7.3 

9.7 

1938 

10,671 

0.87 

7.2 

9.5 

1939 

9,021 

0.98 

7.7 

10.2 

1940 

7,073 

1.10 

8.3 

10.9 

1941 

6,042 

1.35 

9.6 

12.6 

1942 

5,821 

1.38 

12.1 

15.8 

1943 

5,751 

1.47 

13.3 

17.5 

*  17. S.  v.  Great  Atlantic  and  Pacific  Tea  Company,  U.S.  Circuit  Court  of  Ap- 
peals, 7th  district,  Docket  9221,  Records  and  Briefs,  Vol.  I,  p.  322. 

f  U.S.  Bureau  of  the  Census,  1951  Statistical  Supplement,  Survey  of  Current 
Business,  Government  Printing  Office,  Washington,  D.C.,  1952,  p.  8. 

prices  than  other  A  &  P  economy  stores  in  that  city  on  the  entire 
line  of  merchandise.  This  division  expanded  experimental  opera- 
tions to  Cincinnati  where  competition  raged  between  independent 
Albers  and  Kroger 's  Pay  n  Takit  stores. 

In  1935  the  A  &  P  Eastern  Division  experimented  with  100  stores 
known  as  Baby  Bears  in  the  Pittsburgh  area.26  Prices  were  cut  in 
these  stores  on  merchandise  that  was  directly  delivered  from  carload 
lot  purchases.  These  Baby  Bears  emphasized  in  their  advertising  the 
lowest  prices  in  town  on  this  carload  lot  merchandise. 

26  ibid.,  Vol.  II,  p.  162. 


164  Supermarketing 

The  available  evidence  from  the  testimony  indicated  that  these 
experimental  stores  were  for  the  most  part  developed  independently 
by  the  separate  divisions  with  little  or  no  support  from  the  central 
management.  In  1937  the  central  management  reviewed  the  situa- 
tion and  decided  to  switch  to  supermarket  operation.  Its  aim  was  to 
operate  each  super  at  a  gross  margin  of  12  per  cent,  expenses  of  10 
per  cent,  and  a  net  profit  of  2  per  cent.27 

A  &  P  Joins  the  Supermarket  Industry  in  1937 

The  success  of  the  divisional  experimental  supers,  coupled  with 
the  loss  of  sales,  profits,  and  competitive  position  in  the  conventional 
stores,  finally  resulted  in  a  decision  by  top  management  to  shift  the 
operational  policy.  The  data  in  Table  8-6  indicate  the  complete  re- 

TABLE  8-6  * 

Statistics  on  Total  Number  of  A  &  P  Stores,  Number 

of  Supermarkets,  Total  Sales  and  Supermarket 

Sales  for  the  Years  1936  to  1943 

(sales  in  millions  of  dollars). 


Number  of 

Number  of 

Total  dollar 

Super 

Year 

stores 

supers 

sales 

sales 

1936 

14,446 

20 

$    889 

$  00 

1937 

13,058 

282 

864 

53 

1938 

10,671 

771 

866 

220 

1939 

9,021 

1,119 

976 

401 

1940 

7,073 

1,396 

1,099 

594 

1941 

6,042 

1,594 

1,348 

846 

1942 

5,821 

1,633 

1,435 

934 

1943 

5,751 

1,646 

1,259 

761 

*  United  States  v.  The  Great  Atlantic  and  Pacific  Tea  Company,  U.S.  Circuit 
Court  of  Appeals,  7th  district,  Docket  9221,  Records  and  Briefs,  Vol.  1,  p.  323. 

versal  of  policy  and  the  rapid  conversion  to  supermarket  operation 
that  this  giant  food  chain  made  within  six  years.  At  the  close  of 
1937,  A  &  P  was  already  operating  282  supermarkets.  Yet,  President 
Hartford  expressed  concern  over  the  pace  of  supermarket  develop- 

27  Ibid.,  p.  196. 


Early  Supermarket  Impact  on  the  Food  Store  Industry  165 

ment  and  urged  that  everything  possible  be  done  to  speed  up  the 
program.  He  suggested  the  advisability  of  having  special  men  con- 
centrate on  the  search  for  new  locations. 

In  addition  to  concentrating  on  supermarket  expansion,  the  man- 
agement endeavored  to  ascertain  whether  the  larger  or  smaller 
supers  were  more  profitable.  Statistics  from  the  Central  Western  Di- 
vision indicated  that  the  larger  type  of  supermarket  with  weekly 
sales  of  $10,000  and  over  had  an  operating  expense  advantage  over 
the  stores  with  $6,000  or  less  weekly  volume.28 

Data  in  Table  8-6  indicate  that  by  1941,  the  1,594  units  (or  about 
29  per  cent)  of  all  A  &  P  stores  were  supermarkets;  and  these  units, 
with  sales  of  $846,000,000  accounted  for  63  per  cent  of  the  total  sales. 
However,  following  1941,  supermarket  expansion  by  the  A  &  P  was 
handicapped  because  of  World  War  II.  The  management  reported 
operations  were  hampered  by  gas  rationing,  food  rationing,  and 
man  power  shortages.  Furthermore,  some  customers  switched  to 
stores  where  they  could  establish  personal  relationship  with  the 
owners. 

Effect  of  A  &  P  Supermarket  Operation  on  Its 
Gross  Margin,  Expense,  and  Profit 

Once  the  supermarket  independents  became  important  in  the  food 
store  field,  the  operation  of  the  industry  giant  was  adversely  affected. 
From  1932  until  A  &  P  joined  the  supermarket  operation,  the  aver- 
age A  &  P  store  was  forced  to  operate  on  a  smaller  gross  margin  in 
order  to  meet  price  competition.  Even  though  expenses  were  re- 
duced through  close  control,  profits  dwindled.  However,  after  1937 
company  operations  improved  because  of  its  switch  to  supermarket 
activity.  By  1941  the  supermarket  division  of  A  &  P  was  working  on 
a  gross  margin  of  12.4  per  cent,  an  expense  of  10.51  per  cent,  and  a 
net  profit  of  1.96  per  cent  as  indicated  in  Table  8-7.  This  was  a 
vastly  superior  showing  compared  with  the  economy  stores  that  still 
remained  in  operation  in  1941.  A  &  P  gained  in  its  relative  sales  posi- 

28  ibid. 


166  Supermarketing 

tion  in  the  grocery  store  and  combination  market  industry  after  it 
switched  to  supermarket  operation;  whereas  A  &  P  had  only  11.7 
per  cent  of  the  total  grocery  store  and  combination  market  sales  in 
1937,  it  increased  its  position  to  14.1  per  cent  of  the  industry  sales 
byl941.29 

SUPERMARKET  ADVANTAGES  FOR  LARGE 
FOOD  CHAINS 

The  numerous  red-front  A  &  P  units  scattered  throughout  the 
country  were  the  leaders  in  food  store  retailing  prior  to  1930.  Other 
large  chains  had  a  similar  type  of  operation.30  Then,  almost  simul- 

TABLE  8-7* 

Operating  Results  of  the  A  &  P  Detailed  into  Economy  Stores 
and  Supermarkets  for  the  Year  1941   (sales  in  thousands). 


4,448  Economy  stores 
Dollar  sales         %  of  sales 

1,594 

Supers 

Dollar  sales 

%  of  sales 

Weekly  sales 
Cost  of  sales 

$6,276 
5,208 

100.00 
82.99 

$17,336 
15,169 

100.00 
87.53 

Gross  margin 
Expenses 

1,068 
966 

17.01 
15.39 

2,167 
1,820 

12.47 
10.51 

Net  profit 

$    102 

1.62 

$      347 

1.96 

*  United  States  v.  The  Great  A  &  P  Tea  Co.,  U.S.  Circuit  Court  of  Appeals, 
7th  district,  Docket  9221,  Records  and  Briefs,  Vol.  I,  p.  323. 

taneously,  the  A  &  P  and  its  brethren  had  to  meet  the  challenge  of 
the  supermarket,  the  NRA,  the  Robinson  Patman  Act,  and  chain 
store  tax  laws.  The  supermarket  was  underpricing  the  food  chains; 
the  NRA  forced  the  chains  to  raise  wages;  the  Robinson  Patman  Act 

29  Statistics  to  make  these  calculations  are  contained  in  Table  8-5.  The  1937 
A  &  P  sales  were  $864  million,  and  grocery  store  and  combination  market  sales 
were  $7,300  million.  In  1941  A  &  P  sales  were  $1,348  billion,  and  grocery  and 
combination  market  sales  were  $9.6  billion. 

30  Paul  H.  Ny strom,  Retail  Store  Operation  (New  York:  The  Ronald  Press 
Co.,  1937),  p.  466. 


Early  Supermarket  Impact  on  the  Food  Store  Industry  167 

restricted  the  buying  advantages  of  the  large  operators;  and  the 
progressively  heavier  chain  store  taxes  levied  on  the  number  of  units 
operated  stifled  large  multi-unit  expansion. 

Actually,  the  supermarket  type  of  operation  adopted  by  the  A  &  P 
and  other  large  chains  aided  them  to  meet  successfully  the  exist- 
ing price  competition.  The  advantages  of  supermarket  operation 
stemmed  from  the  following: 

1.  Fewer  stores  resulted  in  reduced  chain  taxes  per  store. 

2.  The  total  cost  of  opening  new  stores  was  reduced  since  fewer 
stores  were  opened. 

3.  Reduced  operating  costs  as  a  percentage  of  sales  were  realized. 
The  principal  disadvantage  lay  in  the  larger  investment  per  store 

with  its  accompanying  risk. 

SUMMARY 

The  independent  operators  were  the  innovators  of  supermarkets.  Un- 
like David  versus  Goliath,  they  tackled  two  adversaries,  namely,  the  food 
chains  and  the  host  of  small  independent  food  store  operators.  The  super- 
market methods  of  merchandising  and  store  operation  proved  so  success- 
ful that  they  rapidly  spread  consternation  among  the  chains  and  small 
independents.  The  supers  captured  substantial  portions  of  the  volume  in 
the  trading  areas  they  invaded.  The  small  independents,  in  the  main, 
either  became  supers  or  gradually  disappeared  from  the  scene.  The  chains 
successfully  competed  by  joining  the  supermarket  movement.  Chains  sub- 
stantially revamped  operations  and  soon  became  dominant  in  the  industry 
volumewise.  This  change-over  by  the  chains,  as  evidenced  in  this  chapter 
by  the  record  of  the  Great  Atlantic  and  Pacific  Tea  Company,  was  revo- 
lutionary in  nature. 


SUPERMARKETS  BECOME 
BIG  BUSINESS- 
INTEGRATION 


INTRODUCTION 

In  the  preceding  chapter,  the  initial  impact  of  the  supermarket  on 
the  field  of  food  store  retailing  was  presented.  The  reaction  of  both 
small  independent  merchants  and  giant  food  chains,  with  special 
emphasis  on  the  Great  Atlantic  and  Pacific  Tea  Company,  was  meas- 
ured. Through  rationing  restrictions  beyond  its  control,  the  super- 
market showed  little  growth  and  impact  during  the  World  War  II 
years.  The  only  exception  was  the  addition  of  nonfoods  to  the  line  in 
order  to  sustain  or  build  volume. 

This  chapter  measures  the  impact  of  the  supermarket  in  the  post- 
war era  when  the  industry  literally  came  of  age.  Food  retailing  be- 
came big  business,  not  only  in  the  sense  that  larger  and  larger  stores 
requiring  substantial  investments  were  built  in  new  locations,  but 
also  through  a  strong  trend  toward  concentration  in  the  hands  of 
fewer  and  larger  concerns. 

CHAINS  DOMINATE  SUPERMARKET  INDUSTRY 

In  the  early  1930's  all  supermarts  were  independents.  In  the  early 
1940's  chains  began  to  make  inroads.  These  chains  were  not  neces- 
sarily the  big  food  concerns  of  the  1920's.  Shrewd  and  capable  mer- 
chants who  started  with  one  unit  built  empires  as  exemplified  by 
Food  Fair  Stores  and  Albers  Supermarkets.  By  1950,  according  to 
Progressive  Grocer,  about  37  per  cent  of  the  supermarkets  with  less 
168 


Supermarkets  Become  Big  Business— Integration  169 

than  37  per  cent  of  the  volume  were  still  individual  operations  at 
one  location;  by  1958  only  20.7  per  cent  of  the  supermarkets  trans- 
acting 18.2  per  cent  of  the  industry  volume  were  one-unit  operations 
in  an  industry  that  now  dominated  all  food  store  sales.1  Chain  stores 
in  1958  operated  66.6  per  cent  of  the  stores  and  transacted  69.1  per 
cent  of  the  supermarket  industry  volume.2 

INTEGRATION 

The  entire  supermarket  industry  has  mushroomed  in  the  postwar 
era  as  indicated  by  statistics  in  Table  1-2;  yet  the  chain  members 
have  outstripped  the  independent  operators  in  this  aura  of  growth. 
Integration  has  played  an  important  role  in  the  drive  of  the  chains 
to  dominate  this  field  since  they  used  this  device  more  frequently 
than  the  independents.  Although  all  chains  have  not  grown  at  the 
same  rate,  the  most  rapidly  growing  concerns  generally  have  been 
the  principal  users  of  integration. 

Integration,  which  means  the  bringing  of  parts  into  a  whole,  has 
taken  two  directions,  namely,  horizontal  and  vertical  combinations. 
In  marketing  parlance,  horizontal  or  lateral  integration  occurs  with 
consolidations  of  two  or  more  similar  concerns  performing  the  same 
functions  in  the  same  stage  of  distribution.  This  occurs  when  one 
supermarket  concern  purchases  the  store  or  stores  of  another  super- 
mart  firm.  Vertical  integration  refers  to  the  operation  by  a  firm  of  the 
processes  and  functions  in  two  or  more  stages  of  distribution  or  pro- 
duction.3 Simply,  a  supermarket  firm  that  operates  its  own  bakery 
and  distributes  the  products  through  its  outlets  is  integrated  verti- 
cally. Also,  the  supermarket  concern  that  performs  wholesale  func- 
tions by  operating  its  own  warehouse  is  integrated  vertically.  In- 
herent in  a  successful  combination  is  the  reduction  in  expense  that 
results  from  the  coordination  of  the  various  parts  of  the  integrated 
concern. 


l  See  Table  1-3. 
*lbid. 

3 Paul  Converse  and  Harvey  Huegy,  The  Elements  of  Marketing  (New  York: 
Prentice-Hall,  Inc.,  1958),  p.  243. 


170  Supermarketing 

Supermarkets  generally  have  employed  both  horizontal  and  verti- 
cal integration.  The  usual  practice  has  been  for  the  smaller  concerns 
to  integrate  horizontally  until  they  are  large  enough  (have  sufficient 
outlets)  to  assume  the  major  part  of  wholesale  operations.  The  as- 
sumption of  the  wholesale  function  is  vertical  integration  of  mar- 
keting activity.  Supermarkets  obtain  81  per  cent  of  their  groceries 
through  their  own  central  warehouses  and  an  additional  10  per  cent 
through  retailer-owned  cooperatives.4  Supermarket  chains  or  retail- 
sponsored  cooperatives  design  and  operate  their  wholesale  integra- 
tion at  different  levels  of  volume.  Some  need  about  12  to  14  retail 
outlets  doing  from  $15  million  to  $20  million  in  yearly  volume  to 
make  the  entire  operation  a  success.  Certain  larger  chains  may  re- 
quire as  many  as  25  stores  doing  at  least  $30  million  in  sales  to  be 
serviced  by  the  wholesale  division  in  order  to  make  the  integration 
profitable. 

As  the  concerns  attain  sufficient  size,  they  can  extend  vertical  in- 
tegration by  entry  into  certain  manufacturing  operations  and  can 
thus  perform  all  the  consecutive  processes  in  food  manufacture  and 
distribution.  The  extent  of  food  manufacturing  performed  by  food 
chains  is  shown  by  the  data  in  Table  9-1.  In  1958  the  62  major  chain 
supermarkets  owned  326  factories  that  produced  and  shipped  $1,304 
billion  in  products.  Chain-branded  products  of  $1,304  billion  at 
manufacturer's  prices  or  $1,630  billion  at  retail  prices  ( adjusted  for 
a  20  per  cent  markup )  are  slightly  under  10  per  cent  of  total  chain 
food  store  sales  of  $18,589  billion  in  1958.  The  coffee  and  bakery 
areas  are  two  of  the  most  frequently  entered  fields.  Generally  a 
supermarket  operation  needs  about  $30  million  in  volume  to  make 
the  vertical  integration  into  the  bakery  operation  profitable.  Other 
areas  invaded  by  supers  include  dairy  products,  mayonnaise,  pre- 
serves, and  confections.  Certain  of  the  larger  supermarket  operations 
are  experimenting  with  or  have  entered  into  the  meat-packing  field 
with  22  packaging  and  preparing  plants  in  operation.  Food  process- 
ing in  the  form  of  storing  green  bananas  and  tomatoes  until  they 

^  "How  the  Super  Markets  Get  Their  Groceries,"  Super  Market  Industry 
Speaks  (Chicago:  Super  Market  Institute,  1956),  p.  14. 


Supermarkets  Become  Big  Business— Integration  171 


TABLE  9-1  * 

Number  of  Food  Manufacturing  Plants  Operated  by  62  Major 

Food  Chains  and  the  Value  of  Shipments  from  These 

Establishments  for  the  Years  1954  and  1958. 


Number  of  Value  of  shipments 

establishments  (in  thousands) 


Kind  of  establishment 

1954 

1958 

1954 

1958 

Meat  packing 
Prepared  meats 
Poultry  dressing 
Dairy  products 
Concentrated  milk 

9 
11 

2 
32 
12 

9 
13 

4 
41 
12 

$      94,500 

38,200 

3,400 

34,700 

46,800 

$    149,000 

78,100 

7,100 

54,800 

57,200 

Fluid  milk 

Canning  and  freezing 

Bread  and  related  products 

Confectionery 

22 

11 

126 

6 

27 

13 

147 

7 

57,500 

77,000 

289,500 

31,000 

95,900 

99,100 

379,500 

43,200 

Miscellaneous  food  preparation 
Coffee,  roasted  or 
concentrated 

16 

38 
285 

14 

39 

326 

85,700 
316,700 

105,300 
234,400 

Total 

$1,075,000 

$1,303,600 

*  Federal  Trade  Commission,  Federal  Trade  Commission  Economic  Inquiry 
into  Food  Marketing — Interim  Report,  Government  Printing  Office,  Washington, 
D.C.,  June  30,  1959. 

are  ripe  is  performed  on  a  large  scale.  The  ultimate  in  vertical  in- 
tegration is  exemplified  currently  by  the  Great  Atlantic  and  Pacific 
Tea  Company  with  its  widely  known  Ann  Page,  Jane  Parker,  Iona, 
Red  Circle,  Bokar,  and  Whitehouse  lines  of  products. 

While  the  statistics  in  Table  9-1  indicate  that  the  supermarket  in- 
dustry is  expanding  into  the  meat  packing  area  through  vertical 
integration,  a  battle  with  the  giant  packers  may  be  in  the  offing.  The 
meat-packing  industry,  one  in  which  there  is  a  high  degree  of  con- 
centration of  power  in  a  relatively  few  firms,  has  been  hamstrung  by 
the  Consent  Decree  of  1920.  This  decree  resulted  from  action  taken 
by  the  federal  government  under  the  Sherman  Anti-trust  Act  and 
listed  more  than  100  products  which  the  packers  were  not  allowed 


172  Supermarketing 

to  make,  sell,  or  transport.  In  addition,  the  packers  involved  agreed 
to  divest  themselves  of  businesses  considered  to  be  unrelated  to  the 
preparation  and  wholesale  distribution  of  meat  products.  In  Novem- 
ber, 1956,  the  Cudahy  Packing  Company  filed  a  petition  in  the 
United  States  District  Court  in  Chicago,  Illinois,  seeking  release 
from  certain  provisions  of  the  1920  Decree.  Two  other  parties  to  the 
decree,  Armour  and  Company  and  Swift  and  Company,  also  filed 
petitions  asking  for  similar  relief.  Extensive  evidence  demonstrating 
the  significant  changes  in  the  distribution  of  food  products  at  all 
levels  since  1920  has  been  presented  to  the  court;  a  decision  is  ex- 
pected in  1961.  Some  of  the  possible  areas  of  expansion  for  the  meat 
packers  include  diversification  into  allied  food  products,  integration 
through  acquisition  of  common  stock  in  supermarket  chains,  ex- 
pansion into  the  area  of  frozen  and  prepackaged  meats  for  the  retail 
trade  to  be  sold  under  an  identifying  label,  and  development  of  new 
operating  methods. 

CONCENTRATION  AMONG  MAJOR  FOOD  CHAINS 

The  major  food  chains  currently  dominate  the  supermarket  and 
food  store  industries  volumewise.  The  sales  statistics  of  ten  of  these 
chains  are  recorded  in  Table  9-2  and  show  a  phenomenal  $10.1  bil- 
lion increase  between  the  years  1945  and  1958.  The  industry  giant, 
the  Great  Atlantic  &  Pacific  Tea  Company,  had  a  sales  rise  from 
$1,435  billion  to  $5,095  billion  in  this  13-year  period,  or  an  increase 
of  355  per  cent.  Food  Fair  Stores,  Incorporated,  experienced  a  phe- 
nomenal sales  boost  during  this  interval  from  $61  million  to  $734 
million,  or  over  1,200  per  cent. 

Further  evidence  of  this  high  degree  of  concentration  in  the  retail 
food  industry  is  indicated  by  the  statistics  in  Table  9-2.  Ten  of  the 
largest  volume  concerns  with  sales  of  $13.4  billion  transacted  about 
one-fourth  of  all  food  store  sales  in  the  country  in  1958. 

It  is  not  solely  in  the  number  of  stores  where  strength  of  the  large 
chains  lies.  Examine  the  trend  toward  fewer  and  larger  stores  with 
bigger  investments  per  location,  as  shown  by  the  statistics  of  Ameri- 
can Stores  Company  in  Table  9-4.  The  statistics  of  this  company 
exemplify  the  direction  the  large  supermart  chains  generally  have 


Supermarkets  Become  Big  Business— Integration  173 


TABLE  9-2  * 

Dollar  Sales  of  Ten  of  the  Largest  Food  Store  Chains 
for  the  Years  1945  and  1958  (in  millions). 


Company  f 

1945 

J95S 

Great  A  &  P  Tea  Co. 

$1,435 

$  5,095 

Safeway  Stores 

615 

2,225 

Kroger  Co. 

457 

1,776 

American  Stores  Co. 

224 

866 

National  Tea  Co. 

107 

794 

Food  Fair  Stores 

61 

734 

First  National  Stores 

182 

531 

Colonial  Stores 

99 

437 

Grand  Union  Co. 

55 

504 

Jewel  Tea  Co. 

62 

444 

Total 

$3,297 

$13,406 

*  Moody's  Industrial  Manuals. 

f  In  1958,  Winn-Dixie  Stores,  Inc.,  transacted  $631  million  in  sales.  However, 
consolidated  sales  for  this  firm,  which  is  the  result  of  a  merger  in  1955,  are  not 
available  for  the  year  1945. 


TABLE  9-3 

Sales  of  Ten  Major  Supermarket  Chains  and 
Total  Food  Store  Sales  for  the  Years  1945 


and  1958  (in  millions). 

1 945 

J958 

Sales  of  10  major  supermarket  chains  * 
Total  food  store  sales  f 
10  major  supermarket  chains  as  a  per  cent 
of  total  food  store  sales 

$  3,297 
19,120 

17.24% 

$13,406 
53,075 

25.26% 

*  See  totals  Table  9-2. 

f  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1959),  p. 
F-17. 

taken  to  dominate  the  food  store  industry.  Between  1945  and  1958, 
American  Stores  followed  a  policy  of  integration  while  decreasing 
the  number  of  outlets  from  1,954  to  only  844;  but  in  the  same  in- 
terval, average  sales  per  store  rose  from  $118,000  to  almost  $1,000,- 
000,  and  net  income  per  outlet  rose  from  $1,005  to  $12,432. 


174 


Supermarketing 


FOOD  CHAIN  DILEMMA-ACQUIRE  OR  EXPIRE 

In  the  postwar  era,  the  supermarkets  became  the  largest  class  of 
food  stores,  according  to  volume.  In  turn,  the  food  chains  as  a  group 
gained  volume  and  numerical  superiority  in  the  supermarket  indus- 
try. They  were  able  to  attain  superiority  over  the  independent  supers 


TABLE  9-4  * 

Number  of  Stores,  Sales  per  Store,  and  Net  Income  per  Store  for 
American  Stores  Company  for  the  Years  1945  to  1958. 


Average 

Number 

sales  per  store 

Net  income 

Year 

of  stores 

(in  thousands) 

per  store 

1945 

1,954 

$118 

$  1,005 

1946 

2,012 

156 

2,237 

1947 

1,921 

202 

3,084 

1948 

1,833 

227 

3,089 

1950 

1,637 

254 

4,119 

1951 

1,505 

312 

4,727 

1952 

1,408 

370 

3,590 

1953 

1,289 

421 

3,948 

1954 

1,132 

533 

6,597 

1955 

1,076 

581 

6,520 

1956 

953 

687 

8,745 

1957 

903 

864 

10,731 

1958 

844 

992 

12,432 

*  Moody's  Industrial  Manual. 

as  to  the  number  of  stores  and  volume  even  though  they  eliminated 
many  small  outlets.  The  food  chains  attained  dominance  by  the 
standard  procedure  of  ( 1 )  continuously  building  and  opening  new 
large  units  and  (2)  integrating  horizontally  through  the  acquisition 
of  going  concerns.  The  Federal  Trade  Commission  reported  that  151 
companies  during  the  years  1953  to  1958  opened  new  stores  and 
acquired  existing  outlets  which  had  sales  of  $3,908  billion  and 
$1.2999  billion,  respectively,  for  the  year  1958.5 

5  Federal  Trade  Commission,  Federal  Trade  Commission  Economic  Inquiry 
Into  Food  Marketing — Interim  Report,  Government  Printing  Office,  Washing- 
ton, D.C.,  June  30,  1959. 


Supermarkets  Become  Big  Business— Integration  175 

Further  evidence  of  the  extent  of  acquisitions  is  shown  by  the 
data  in  Table  9-5.  In  the  years  1949  to  1958,  83  supermarket  con- 
cerns acquired  315  operating  companies  which  owned  2,238  stores 
that  transacted  $1,916  billion  in  annual  sales  at  the  time  of  acquisi- 
tion. The  merger  movement  trend  continues  to  increase.  The  year 
1958  was  the  most  active  year  for  mergers,  both  as  to  the  number 
of  companies  active  in  acquiring  outlets  and  as  to  the  sales  of  the 
stores  purchased  at  the  time  of  acquisition. 

Among  the  food  chains  themselves,  however,  significant  shifts 
had  been  taking  place  in  the  pattern  of  sales.  Statistics  in  Table  9-2 
indicate  remarkable  growth  for  all  major  members  of  the  industry; 
but  all  concerns  did  not  expand  at  the  same  rate.  The  fast-moving, 
medium-sized  chains  appear  to  have  made  inroads  in  the  relative 
position  volumewise  at  the  expense  of  the  giants  in  the  industry  and 
the  small-chain  operators. 

In  order  to  assess  this  development  in  supermarket  chain  sales, 
it  is  necessary  ( 1 )  to  measure  changes  in  relative  volume  among  the 
large,  medium,  and  small  chains;  (2)  to  summarize  recent  acquisi- 
tions and  mergers;  (3)  to  examine  the  underlying  forces  behind  the 
merger  movement;  and  (4)  to  indicate  the  impact  on  food  store  dis- 
tribution.6 

Changes  in  Relative  Position  Among  Food  Chains  by  Size 

Only  for  the  purpose  of  showing  approximate  size  are  the  food 
chains  grouped  into  three  classifications  by  volume.  This  grouping 
includes  large  concerns  with  sales  of  $1  billion  or  more,  medium- 
sized  chains  with  sales  from  $100  million  to  $999  million,  and  small 
companies  with  sales  of  less  than  $100  million  as  of  the  year  1957. 
This  classification  need  not  be  sacrosanct  in  that  large  and  small 
concerns  bordering  on  the  $100  million  and  $999  million  boundaries 
have  been  active  in  mergers  and  could  be  considered  for  the  pur- 
poses of  analysis  in  the  medium-sized  class. 

6  The  author  first  presented  these  ideas  in  an  article,  "Food  Chain  Dilemma — 
Acquire  or  Expire,"  which  appeared  in  the  Journal  of  Retailing,  XXXIV,  no.  4, 
Winter,  1958-1959,  p.  216. 


176 

Supermarketing 

TABLE  9-5 

* 

Number  and  Volume  of  Food  Stores  That  Were  Acquired 

by  Food  Chains  for  the  Years  1949  to  1958. 

Annual  sales 

of  stores 

Number  of 

purchased 

Number  of 

Number  of 

stores  acquired 

at  time  of 

Year  of 

acquiring 

concerns 

as  a  result  of 

acquisition 

acquisition 

companies 

acquired 

the  merger 

(in  thousands) 

1949 

6 

6 

72 

$      66,180 

1950 

5 

5 

5 

3,889 

1951 

10 

12 

69 

27,829 

1952 

5 

10 

273 

67,343 

1953 

11 

12 

71 

86,617 

1954 

17 

20 

70 

60,580 

1955 

23 

48 

455 

434,166 

1956 

36 

70 

439 

397,325 

1957 

34 

54 

363 

322,520 

1958 

38 

83  f 

78 
315 

421 
2,238 

450,003 

Total 

$1,916,452 

*  Federal  Trade  Commission,  Federal  Trade  Commission  Economic  Inquiry 
Into  Food  Marketing — Interim  Report,  Government  Printing  Office,  Washing- 
ton, D.C.,  June  30,  1959. 

f  This  total  represents  the  number  of  concerns  that  made  acquisitions;  it  is 
not  based  on  a  column  total  inasmuch  as  some  companies  made  acquisitions 
in  more  than  one  year. 

The  individual  leader  in  the  food  chain  field,  by  far,  continues  to 
be  the  Great  Atlantic  and  Pacific  Tea  Company,  which  in  1957  trans- 
acted 27.44  per  cent  of  all  chain  grocery  and  combination  store  sales, 
as  shown  by  the  statistics  in  Table  9-6.  Yet,  the  A  &  P  together  with 
Safeway  Stores  suffered  a  loss  in  relative  industry  position  among 
the  food  chains  in  recent  years.  Although  they  followed  the  standard 
practice  of  eliminating  smaller  stores  and  opening  larger  units,  they 
were  inactive  in  the  merger  movement  with  one  notable  exception, 
namely,  Safeway 's  expansion  in  the  Des  Moines,  Iowa,  market.7 

7  The  Merger  Movement  in  Retail  Food  Distribution  (Chicago:  National  As- 
sociation of  Retail  Grocers,  1959),  p.  15. 


Supermarkets  Become  Big  Business— Integration  111 

This  does  not  mean,  however,  that  these  concerns  are  losing  their 
share  of  total  food  store  volume.  For  example,  A  &  P  had  9.1  per 
cent  of  the  total  food  store  sales  in  1951  and  10.1  per  cent  in  1958.8 

TABLE  9-6 

Chain  Grocery  Store  Sales  Classified  by  Volume, 

Expressed  in  Dollars  and  as  a  Percentage  of  Total  Chain 

Grocery  Sales  for  the  Years  1951  and  1957. 


1951 

1957 

Millions 

Millions 

Number  of  outlets 

of  dollars 

%  of  total 

of  dollars 

%  of  total 

Chains  with  $1  billion  and 

over  sales  in  1957  * 

Great  Atlantic  &  Pacific 

Tea  Co. 

$  3,393 

31.66 

$  4,769 

27.44 

Safeway  Stores,  Inc. 

1,455 

13.58 

2,117 

12.18 

Kroger  Co. 

997 

9.30 

1,674 

9.63 

Subtotal 

5,845 

54.54 

8,560 

49.25 

Chains  with  $100-999 

million  sales  in  1957  f 

2,922 

27.26 

6,267 

36.06 

Chains  with  sales  less  than 

$100  million  in  1957  \ 

1,951 

18.20 

2,552 

14.69 

Totals  § 

$10,718 

100.00 

$17,379 

100.00 

*  Compiled  from  statistics  published  in  the  Federal  Trade  Commission  report 
entitled  Federal  Trade  Commission  Economic  Inquiry  Into  Food  Marketing — 
Interim  Report,  Government  Printing  Office,  Washington,  D.C.,  June  30,  1959. 

f  Ibid. 

X  Calculated  by  subtracting  total  chain  food  store  sales  of  $100  million  or 
more  volume  from  total  industry  sales. 

§  U.S.  Bureau  of  the  Census,  Statistical  Abstract  of  the  U.S.,  Government 
Printing  Office,  Washington,  D.C.,  1959,  p.  834. 

The  other  member  of  the  billion-dollar  volume  classification,  The 
Kroger  Company,  improved  its  relative  position  through  opening 
new  stores  and  the  merger  route.  These  three  members  of  the  billion- 
dollar  classification  group  acquired  179  stores  transacting  $240  mil- 
lion in  annual  sales  during  the  period  1955  to  1958.9 

8  Federal  Trade  Commission,  op.  cit. 

9  The  Merger  Movement  in  Retail  Food  Distribution,  op.  cit. 


178  Supermarketing 

The  greatest  increase  in  volume  from  1951  to  1957  was  made  by 
the  medium-sized  group  of  stores  in  the  $100  million  to  $999  million 
volume  class.  In  1957  these  stores  commanded  36.06  per  cent  of  the 
chain  food  sales  as  compared  with  only  27.26  per  cent  in  1951. 
Mergers  and  acquisitions  were  responsible  primarily  for  this  gain. 
This  segment  of  chain  food  stores  acquired  1,092  outlets  transacting 
$1,220  billion  in  annual  sales  during  the  period  of  1955  to  1958.10 

The  small  chains  of  less  than  $100  million  in  annual  volume  have 
suffered  a  significant  loss  in  relative  position  in  recent  years.  They 
have  dropped  in  volume  from  18.20  per  cent  to  14.69  per  cent  of 
chain  grocery  and  combination  store  sales.  It  was  on  this  group, 
multi-unit  operators  of  less  than  11  stores  and  single-unit  concerns, 
that  the  medium-sized  chains  made  their  raids.  These  inroads  re- 
sulted even  though  the  chains  of  $100  million  sales  or  less  in  turn 
made  acquisition  among  the  smaller  supermarket  companies;  these 
acquisitions  included  392  stores  that  transacted  $443  million  in  an- 
nual sales  during  the  period  1955  to  1958.11 

Acquisitions 

The  numerical  record  of  mergers  compiled  by  ten  of  the  major 
supermarket  chains  for  the  years  1949  to  1958  is  summarized  in 
Table  9-7.  All  but  the  Great  Atlantic  and  Pacific  Tea  Company  have 
participated  to  varying  degrees  in  this  movement;  the  most  active 
concerns  in  the  merger  movement  have  been  the  National  Tea  Com- 
pany, Winn  Dixie  Stores,  Incorporated,  the  Kroger  Company,  and 
the  Grand  Union  Company. 

Specifically,  what  acquisitions  have  the  major  supermarket  con- 
cerns made?  What  marketing  areas  have  they  invaded?  The  A  &  P, 
the  major  operator  among  the  food  chains  as  to  volume  and  number 
of  outlets,  has  added  no  new  stores  through  merger  or  acquisition 
in  recent  years.  Safeway  Stores,  Incorporated,  the  second  largest 
operation,  has  been  a  relatively  minor  factor  nationally  in  the  merger 
movement,  with  its   only  major   acquisition   activity  in   the   Des 

io  Ibid. 
n  Ibid. 


Supermarkets  Become  Big  Business— Integration  '  179 


TABLE  9-7 

Number  and  Volume  of  Food  Stores  That  Were 

Acquired  by 

Ten  Major  Food  Chains  for  the  Years  1949  to  1958. 

Annual  sales  of 

stores  purchased 

Number  of 

at  time  of 

Number  of           of  stores 

acquisition 

Name  of  company 

acquisitions           acquired 

(in  thousands) 

American  Stores  Co. 

5                        93 

$      34,442 

Colonial  Stores,  Inc. 

10                         99 

121,906 

Food  Fair  Stores,  Inc. 

6                         67 

107,731 

Grand  Union  Co. 

15                      128 

128,417 

Jewel  Tea  Co.,  Inc. 

2                        43 

56,234 

Kroger  Co. 

5                      130 

174,064 

Lucky  Stores,  Inc. 

4                        56 

72,612 

National  Tea  Co. 

24                      485 

251,612 

Safeway  Stores,  Inc. 

25                        67 

33,016 

Winn-Dixie  Stores,  Inc. 

11                      306 
107                   1,474 

221,070 

Total 

$1,201,104 

*  Federal  Trade  Commission,  Federal  Trade  Commission  Economic  Inquiry 
Into  Food  Marketing — Interim  Report,  Government  Printing  Office,  Washington, 
D.C.,  June  30,  1959. 

Moines,  Iowa,  market.  Kroger,  on  the  other  hand,  has  been  on  a 
constant  program  of  acquisition.  It  recently  acquired  control  of  the 
26  Henke  &  Pillot  Stores  of  Houston,  Texas,  and  the  25-unit  Krambo 
Food  Stores,  Incorporated  of  Wisconsin.  Whereas  Henke  &  Pillot 
Stores  were  in  an  entirely  new  marketing  area,  the  other  merger  put 
Krambo  and  Kroger  in  direct  competition  with  each  other  for  more 
intensive  market  coverage.  Then,  in  1958,  Kroger  acquired  the  44 
stores  of  Wyatt  and  Evans  Food  Stores  in  Texas.  On  April  6,  1959, 
however,  the  Federal  Trade  Commission  charged  the  Kroger  Com- 
pany with  illegally  acquiring  since  1928  more  than  40  corporations 
and  their  1,900  stores.  The  commission  charged  the  acquisitions  vio- 
lated the  antimerger  laws  in  that  they  may  result  in  a  substantial 
lessening  of  competition  or  a  tendency  toward  monopoly  in  the 
processing,  manufacturing,  purchasing,  and  distributing  of  grocery 
products  and  in  the  sale  of  merchandise  in  retail  grocery  stores. 


130  Supermarketing 

In  the  classification  of  chains  with  annual  sales  of  $100  million  to 
$999  million,  the  following  changes  occurred:  Colonial  Stores,  In- 
corporated, captured  the  73  stores  of  Albers  Super  Markets,  Incor- 
porated, of  Ohio  and  14  units  of  Stop  and  Shop  Enterprise  of  Indi- 
ana. Food  Fair  Stores,  Incorporated,  after  experiencing  remarkable 
growth  in  the  postwar  era,  added  16  Carl's  Markets,  Incorporated, 
of  Florida  and  four  stores  of  Budget  Markets,  Incorporated.  Ameri- 
can Stores  Company  purchased  the  92-unit  chain  of  the  Market 
Basket  Corporation  of  New  York.  Grand  Union  Company  acquired 
31  Carrolls'  Limited  Stores  and  certain  Food  Fair  Stores  in  Wash- 
ington, D.C.;  Shirley  Food  Stores  and  certain  Stop  and  Shop  outlets 
in  New  Haven,  Connecticut;  six  Food  Center  Supermarkets  in  New 
York;  and  two  Value  Markets  and  three  Tanner  Stores  in  Miami. 
Jewel  Tea  Company  added  41  stores  of  Eisner  Grocery  Company 
of  Champaign,  Illinois. 

The  greatest  forager  of  the  medium-sized  chains  was  the  National 
Tea  Company,  which  acquired  C.  F.  Smith  Stores  Company,  North- 
west Piggly  Wiggly  Company,  George  T.  Smith's  Market  Basket, 
Incorporated,  Dale  Supermarkets,  28  Food  Center  Stores  in  St. 
Louis,  Missouri;  28  Capital  Stores,  Incorporated,  of  Baton  Rouge, 
Louisiana;  Ashton's  Supermarket  of  Gulfport,  Mississippi;  and  H.  A. 
Smith  Markets,  Incorporated,  and  Montag's  Supermarket  Chain  of 
Memphis,  Tennessee.  The  most  recent  additions  of  National  Tea 
Company  include  the  Maker's  Food  Chain  of  Michigan  and  seven 
stores  in  Peoria,  Illinois,  from  Illinois  Valley  Stores;  seven  units  of 
Devans  Food  Stores,  Mobile,  Alabama;  nine  Logan's  Supermarkets 
of  Nashville;  and  85  Council  Oak  Stores  in  Minnesota  and  Iowa. 
Other  recent  additions  include  stores  in  Colorado,  Michigan,  Iowa, 
and  Illinois. 

In  addition,  National  Tea  Company  may  become  part  of  a  new 
major  international  company  in  the  industry.  George  Weston,  Lim- 
ited, a  Canadian  biscuit  manufacturer,  controls  Loblaw  Groceterias 
Company,  Limited,  one  of  Canada's  largest  grocery  chains.  In  turn, 
Loblaw  Groceterias'  assets  include  56  per  cent  of  the  stock  of  Lo- 


Supermarkets  Become  Big  Business— Integration  181 

blaw,  Incorporated,  and  33  per  cent  interest  of  National  Tea  Com- 
pany. Both  of  the  last  two  are  classed  as  medium-sized  chains.  The 
George  Weston  group,  which  has  been  built  in  recent  years,  also 
has  cast  covetous  glances  at  certain  Safeway  Stores.  On  March  31, 
1959,  the  National  Tea  Company  was  charged  by  the  Federal  Trade 
Commission  with  illegally  acquiring  stores  in  violation  of  the  Clay- 
ton Act's  antimerger  section  and  with  unfair  competition  and  busi- 
ness practices  in  violation  of  the  Federal  Trade  Commission  Act. 

Two  of  the  medium-sized  group,  Dixie  Home  Stores  and  Winn- 
Lovett  Company,  merged  into  the  Winn-Dixie  Stores,  Incorporated, 
a  chain  of  some  447  stores.  Prior  to  the  merger,  Winn-Lovett  Com- 
pany had  acquired  eight  Jitney  Jungle  Stores  of  Alabama  and  Edins 
Food  Stores  of  Columbia,  South  Carolina.  In  1956,  Winn-Dixie 
acquired  24  stores  in  North  Carolina  from  Ketner-Milner  Stores, 
Incorporated,  and  42  stores  of  H.  G.  Hill  Stores,  Incorporated,  in 
the  New  Orleans  area. 

Perhaps  the  most  revolutionary  merger  of  the  medium-sized 
chains  was  the  formation  in  1955  of  ACF-Wrigley  Stores,  Incorpo- 
rated. In  this,  ACF-Brill  Motors  Company  and  the  92  Wrigley  Stores 
of  Detroit,  Michigan,  were  the  principals.  Also  included  in  this  and 
subsequent  development  were  the  20-odd  Big  Bear  Markets  of  Mich- 
igan, Incorporated,  33  Humpty  Dumpty  Stores  of  Oklahoma,  13 
Foodtown  Stores,  Incorporated,  and  10  Fred  Rapp,  Incorporated, 
stores  of  St.  Louis,  Missouri.  This  new  company  of  about  177  stores 
is  reported  planning  additional  acquisitions  and  openings. 

Mergers  have  taken  place  in  the  classification  of  chains  with  less 
than  $100  million  yearly  volume,  but  these  have  been  of  substanti- 
ally less  importance  volumewise  in  the  industry  as  shown  by  the 
statistics  in  Table  9-6.  Perhaps  one  of  the  most  significant  of  these 
was  the  growth  of  Lucky  Stores,  Incorporated,  from  a  40-odd  unit 
chain  into  a  96-unit  operation  as  of  December  31,  1956,  through 
merger  of  Cardinal  Stores,  Incorporated,  Serv-U-Meat  Markets,  and 
Dolly  Madison  International  Foods,  Limited.  In  this  class,  the  trend 
is  toward  larger  operation  by  the  individual  chain. 


182  Supermarketing 

Underlying  Forces  Behind  the  Movement 

While  there  are  many  evident  causes  for  this  merger  movement, 
the  following  are  advanced  as  the  major  reasons  for  this  growing 
concentration  in  the  food  chain  industry. 

1.  The  food  chains  are  the  major  factor  volumewise  in  the  super- 
market industry,  which  in  turn  dominates  retail  food  store  distribu- 
tion. The  general  supermarket  movement  has  been  characterized 
by  an  aggressive  attitude  by  management  toward  growth,  The  su- 
permarket industry  has  been  one  to  adapt  operations  to  meet  the 
needs  and  requirements  of  the  consumer.  "Non  progredi  est  re- 
gredi"  (not  to  go  forward  is  to  go  backward)  or  expand  or  die  is 
the  keynote. 

2.  Profits  before  taxes  as  a  percentage  of  tangible  net  worth 
among  food  chains  in  the  post- World  War  II  era  have  been  excel- 
lent. For  example,  Dixie  Home  Stores  and  Big  Bear  Markets  of 
Michigan,  Incorporated,  have  earned  in  some  years  as  much  as  50 
cents  on  every  dollar  of  owner's  equity.  In  1956,  Food  Fair  Stores 
earned  39  per  cent  and  Market  Basket,  Incorporated,  earned  36  per 
cent  on  tangible  net  worth.  Reinvestment  in  merchandising  activity 
is  necessary  to  continue  this  high  level  of  earnings. 

3.  New  locations  constantly  are  being  pioneered.  However,  as 
these  are  harder  to  find,  management  has  turned  to  acquisition  of 
existing  locations.  It  is  easier  to  estimate  and  evaluate  the  potential 
of  a  going  operation  than  a  new  location. 

4.  The  problems  are  fewer  in  acquiring  existing  locations  than 
in  pioneering  new  stores.  There  is  no  time  delay  in  start-up  expense, 
no  financing  of  real  estate  and  building,  and  less  waiting  for  the  lo- 
cation to  pay  off  profitably. 

5.  The  larger  concerns  are  able  to  spread  the  risk  of  failure  over 
a  wider  geographical  area  by  acquiring  outlets  in  new  regions.  This, 
plus  the  stability  of  the  industry  (food  sales),  has  enabled  many 
chains  to  enter  the  capital  markets  to  "trade  on  equity."  The  ability 
to  borrow  more  easily  and  cheaply  because  of  size  and  diversified 
locations  has  benefited  the  larger  firms.  The  rates  paid  for  capital 
have  been  less  substantial  than  the  profits  that  accrued  from  the 


i 


Supermarkets  Become  Big  Business— Integration  183 

use  of  these  funds.  Many  of  the  firms  studied  in  the  postwar  period 
have  had  consistently  more  creditors'  funds  than  owners'  funds  in 
the  business. 

6.  The  larger  firms  have  more  marketable  securities  to  exchange 
for  the  shares  of  the  smaller  companies  than  do  those  concerns  under 
$100  million  annual  volume.  This  has  given  the  larger  concerns  an 
advantage  in  acquisition  through  stock  exchange. 

7.  A  number  of  food  chains  were  started  in  the  1930's  by  indi- 
viduals as  single-unit  operations,  many  of  which  were  supermarkets. 
These  ventures  have  grown  into  multi-unit  operations.  Management 
now  is  nearing  retirement  and  is  selling  out  to  larger  operators. 

8.  Many  of  the  local  operators  have  found  it  difficult  to  secure 
outside  capital  and  have  been  forced  to  rely  to  a  large  extent  on 

^retained  earnings  for  expansion.  The  present  tax  rate  reduces  the 
amount  available  for  reinvestment,  especially  since  the  cost  o£  pio- 
neering new  locations  has  increased  substantially.  This  has  placed 
the  independent  at  some  disadvantage. 

9.  The  estate  tax  also  has  influenced  the  merger  movement.  The 
small,  family  firms  in  which  the  owners  have  a  large  share  of  their 
wealth  in  the  supermarket  operation  have  been  facing  the  prospect 
in  recent  years  of  paying  the  estate  tax.  The  possibility  that  pay- 
ment of  this  tax  may  jeopardize  the  financial  stability  of  the  firm 
and  injure  the  heirs  of  the  owner  are  factors  that  contribute  to  the 
mergers.12 

10.  Independents  find  it  difficult  to  expand  into  shopping  centers. 
The  big  insurance  companies  that  do  the  bulk  of  the  financing  of 
the  centers  demand  as  tenants  under  long-term  rental  contracts  the 
big  regional  and  national  chain  outlets.  The  independent,  in  most 
instances,  is  prohibited  by  economic  fact  from  expanding  into  shop- 
ping centers.  The  centers  are  changing  the  retail  pattern  of  the 
United  States.13 

12  ibid. 

13  Testimony  of  Earl  W.  Kintner,  Chairman,  Federal  Trade  Commission,  be- 
fore a  Subcommittee  of  the  Select  Committee  on  Small  Business,  United  States 
Senate,  Eighty-sixth  Congress,  First  Session,  July  2,  1959.  These  hearings  are 
published  as  Mergers  and  Unfair  Competition  in  Food  Marketing,  Government 
Printing  Office,  Washington,  D.C.,  1960. 


184  Supermarketing 

11.  There  are  economies  of  large-scale  operation  in  certain  in- 
stances. Better  utilization  of  warehouses,  transportation  equipment, 
and  manufacturing  facilities  have  been  advanced  as  reasons  for  ac- 
quisitions. One  of  the  supermarket  successes  has  been  in  spreading 
fixed  costs  over  a  large  volume.  Large  units  can  integrate  vertically 
more  easily.  Certain  buying  and  selling  advantages  accrue  to  the 
large-scale  operator;  for  example,  the  Thursday  newspaper  adver- 
tising cost  can  be  spread  over  more  stores. 

Trends  in  Mergers  and  Conclusions 

This  trend  toward  concentration  among  the  food  chains  is  a  mani- 
festation of  a  general  trend  in  the  economy— the  big  absorbing  the 
small.  The  largest  member  of  the  food  chain  industry  has  had  fre- 
quent bouts  with  the  Department  of  Justice  as  to  the  size  and  scope 
of  its  operations.  Safeway  Stores,  Incorporated,  operating  in  24 
states  and  commanding  from  12  to  13  per  cent  of  the  chain  food 
store  volume,  likewise  has  been  aware  of  the  A  &  P  versus  the  gov- 
ernment. But  the  framework  of  operation  and  the  advantages  of 
integration  and  growth  are  such  that  the  lesser  lights  in  the  industry 
will  continue  to  gain  on  the  top  few.  In  the  not-too-far  future  the 
data  indicate  definite  trends  toward  fewer  and  larger  food  chains. 
Not  only  will  the  medium-sized  concern  capture  the  small  but  they 
will  also  join  forces  with  other  medium-sized  chains.  The  expansion 
to  new  regions,  such  as  the  move  of  Kroger  Company  to  the  South- 
west, will  be  continued.  In  fact,  large  international  chains  such  as 
the  aforementioned  George  Weston,  Limited,  organization,  are  more 
than  a  remote  possibility.  The  main  limiting  factor  appears  to  be 
fear  of  government  interference. 

As  chains  grow  larger  and  outlets  for  investment  of  funds  are 
needed,  more  emphasis  may  be  placed  on  vertical  integration.  There 
seems  to  be  a  parallel  between  size  of  food  chain  and  degree  of 
emphasis  on  manufacturing  operations.  If  vertical  integration  is  fol- 
lowed, more  products  of  the  Ann  Page  or  Jane  Parker  variety  can 
be  expected,  although  some  of  the  actual  manufacturing  may  be 
done  by  regular  food  manufacturers.  This  leads  to  what  can  be 


Supermarkets  Become  Big  Business— Integration  185 

called  "chain  labels"  as  distinct  from  private  labels  or  nationally 
advertised  brands.  "Chain  labels"  supported  by  strong  advertising 
and  promotion  can  make  it  more  difficult  for  the  national  brands  to 
gain  shelf  space.  Brand  competition  will  become  keener  with  more 
emphasis  placed  on  advertising  and  promotion. 

Faced  with  large  capital  requirements  and  competition  from  large 
chains  with  diversified  locations,  the  individual  entrepreneur  will 
find  it  more  difficult  to  enter  the  food  business  successfully.  There 
is  a  trend  toward  fewer  and  larger  food  stores  in  the  economy. 

The  death  knell  of  the  service  and  limited-function  wholesaler 
has  been  sounded  for  many  years;  yet,  they  continue  to  exist.  How- 
ever, increased  concentration  in  the  food  chain  industry,  with  em- 
phasis on  buying  and  shipping  direct  from  the  manufacturer  to  chain 
stores  or  warehouses,  could  affect  adversely  wholesalers'  operations. 

As  a  corollary  to  the  above,  important  contracts  may  tend  to  be 
made  to  a  great  extent  at  chain  branches  or  headquarters.  This 
would  make  the  position  of  many  manufacturers'  salesmen  come  un- 
der review  in  this  battle  for  survival.  Some  salesmen  possibly  could 
be  eliminated,  or  their  functions  could  be  changed  to  those  of  set- 
ting up  displays  and  other  merchandising  activities,  or  both  possi- 
bilities could  occur. 

In  the  past  25  years,  developments  in  food  store  retailing  have 
been  almost  revolutionary.  How  much  further  these  changes  will  go 
depends  primarily  on  governmental  policy  in  curbing  mergers.  The 
economic  forces  in  food  chain  distribution  are  marshaled  in  favor  of 
bigness. 

VOLUNTARY  CHAIN  GROWTH 

Faced  with  the  integration  threat  of  the  food  chains  in  the  post- 
war period,  many  independent  supermarket  operators  have  joined 
the  voluntary  chain  movement.  Voluntary  chains  are  of  two  types, 
namely:  (1)  wholesale  grocers  sponsoring  voluntary  retail  groups 
and  (2)  retailer-owned  food  cooperatives  jointly  owning  the  whole- 
sale activity.14  Both  types  have  shown  substantial  growth  in  the  post- 

14  The  activities  of  the  voluntary  chains  are  discussed  in  Chapter  5. 


186  Supermarketing 

war  period,  as  shown  by  the  statistics  in  Table  9-8.  While  the  data 
show  wholesale  sales  of  the  two  types  of  cooperatives,  the  statistics 
can  be  adjusted  to  retail  figures  by  applying  an  approximate  20  per 
cent  markup.  Wholesale  data  are  furnished  inasmuch  as  this  is  one 
of  the  most  feasible  methods  of  collecting  statistics  to  assess  the 
importance  of  the  numerous  independent  retail  operators  through- 
out the  country. 

TABLE  9-8  * 

Wholesale  Sales  of  Certain  Voluntary  Food 
Chain  Groups  in  the  United  States  for  the 
Years  1948,  1954,  and  1958   (in  millions). 


Type  1948  1954  1958 


Wholesale-sponsored  f  $746  $1,444  $2,096 

Retailer-owned  food 

cooperatives  (  543  1,211  2,030 


*  Federal  Trade  Commission,  Federal  Trade  Commission  Economic  Inquiry 
Into  Food  Marketing — Interim  Report,  Government  Printing  Office,  Washington, 
D.C.,  June  30,  1959. 

f  Includes  the  data  for  146  wholesale  grocers  sponsoring  voluntary  retail 
groups  for  each  of  the  years. 

|  Includes  the  data  for  141  retailer-owned  food  cooperatives  for  each  of  the 
years. 

These  voluntary  groups  not  only  have  become  powerful  buying 
forces,  but  in  addition,  they  are  growing  more  and  more  impor- 
tant as  manufacturers.  In  1958  the  voluntary  chain  wholesalers  that 
participated  in  the  Federal  Trade  Commission  study  reported  oper- 
ating 57  manufacturing  plants  that  shipped  $65.7  million  in  prod- 
ucts.15 The  plants  operated  primarily  in  the  coffee  roasting,  dairy 
products,  baking,  and  canning  areas. 

SUMMARY 

In  the  postwar  era,  the  supermarket  industry  literally  came  of  age. 
Volumewise,  the  supermarkets  became  the  largest  group  of  food  retailers. 
In  turn,  the  independent  supermarkets  that  started  and  dominated  the 
industry  were  surpassed  by  the  chain  supers,  both  as  to  number  of  stores 

15  Federal  Trade  Commission,  op.  cit. 


Supermarkets  Become  Big  Business— Integration  187 

and  volume.  The  industry  has  become  one  of  bigness — not  only  as  to  size 
of  stores — but  as  to  concentration  among  its  members.  The  industry  has 
followed  a  standard  practice  of  closing  small  units  and  opening  new  and 
large  locations  in  order  to  maintain  relative  competitive  position.  Except 
for  the  two  largest  concerns,  A  &  P  and  Safeway  Stores,  the  industry 
members  have  been  on  a  shopping  spree  of  gobbling  up  going  concerns. 
As  a  result,  the  fast-moving,  medium-sized  chains  have  acquired  a  host 
of  new  outlets  through  merger  and  acquisition.  The  smaller  chains  in  turn 
have  been  acquiring  numerically  the  even  smaller  operators.  The  forces 
within  the  industry  are  marshaled  toward  bigness,  with  the  only  major 
deterrent  being  the  action  of  the  federal  government  through  the  Federal 
Trade  Commission  and  the  Department  of  Justice.  Legal  action  has  been 
taken  by  the  government  against  certain  of  the  major  industry  members 
for  both  horizontal  and  vertical  integration.  More  legal  action  against 
the  major  concerns  now  active  in  mergers  can  be  anticipated  in  the  near 
future. 

This  move  toward  bigness  is  a  result  of  many  factors.  Basically,  man- 
agement in  this  industry  has  been  characterized  by  an  aggressive  spirit. 
The  earnings  of  the  industry  have  been  excellent,  and  a  source  for  re- 
investment in  merchandising  activities  is  necessary  to  continue  this  high 
level  of  earnings.  New  locations  are  more  and  more  difficult  to  find, 
and  it  is  easier  to  estimate  and  evaluate  the  potential  of  a  going  operation 
than  a  new  location. 

In  addition,  the  larger  firms  have  more  marketable  securities  to  ex- 
change for  the  shares  of  the  smaller  companies.  Next,  management  of 
many  supermarkets  that  were  started  in  the  1930's  is  nearing  retirement 
and  is  selling  out  to  the  larger  operators.  Finally,  there  are  economies  of 
large-scale  operation  in  certain  instances  that  benefit  the  large  super- 
market chains. 

This  trend  toward  concentration  among  the  supermarket  members  is 
a  manifestation  of  a  general  trend  in  the  economy — the  big  absorbing  the 
small.  Faced  with  large  capital  requirements  and  competition  from  large 
chains  with  diversified  locations,  the  individual  entrepreneur  will  find 
it  more  difficult  to  enter  the  food  business  successfully.  The  trend  toward 
fewer  and  larger  food  stores  in  the  economy  will  continue. 


10 


CHANGES  IN  THE 
NUMBER  OF  FOOD  STORES 
AND  THEIR  SALES  VOLUME 


INTRODUCTION 

The  preceding  chapter  examined  the  movement  of  the  large  food 
chains  toward  domination  of  the  supermarket  industry  in  the  post- 
war era.  Integration  policies  and  practices  of  the  large  food  chains 
were  examined.  The  purpose  of  this  and  the  following  chapter  is  to 
discern  changes  in  the  pattern  of  food  store  sales  between  1929  and 
1958.  To  do  this,  it  is  necessary  to  examine  data  at  three  points  in 
time-1929,  1954,  and  1958. 

The  year  1929  was  selected  because  (1)  for  all  practical  pur- 
poses, supermarkets  were  nonexistent  at  the  time,  and  (2)  it  was  a 
year  for  which  the  Bureau  of  Census  published  Retail  Distribution 
Statistics.  The  year  1954  was  included  because  it  was  the  closest 
year  to  date  for  which  Retail  Trade  Statistics  were  given  by  the 
Bureau  of  the  Census.  The  changes  that  are  measured  statistically 
at  these  points  in  time  are  shifts  in  the  absolute  and  relative  posi- 
tions. These  include: 

1.  Number  of  different  types  of  food  stores 

2.  Dollar  sales  of  different  types  of  food  stores 

3.  Sales  of  the  major  product  lines  transacted  by  different  types 
of  food  stores 

The  first  two  issues  are  examined  in  the  remainder  of  this  chapter. 
188 


Changes  in  Number  of  Food  Stores  and  Sales  Volume  189 

Product-line  sales  by  type  of  food  store  outlet  are  analyzed  in  Chap- 
ter 11. 

CHANGES  IN  THE  NUMBER  OF  FOOD  STORES 

The  era  of  the  "roaring  twenties"  was  also  the  heyday  of  specialty 
food  stores.  This  is  evidenced  by  data  in  Table  10-1  which  indicate 

TABLE  10-1 

Number  of  Food  Stores  in  the  United  States  by  Type 
of  Store  for  the  Years  1929,  1954,  and  1958. 


1929 

1 954 

1958 

Type 

stores  * 

stores  f 

stores  \ 

Grocery  stores  (without  meat) 

191,876 

000  § 

72,300 

Combination  markets 

115,549 

279,440 

188,700 

Meat  and  seafood  markets 

49,865 

27,354 

22,500 

Fruit  and  vegetable  markets 

22,904 

13,136 

12,000 

Confectionery  stores 

63,265 

20,507 

20,000 

Bakery  product  stores 

12,013 

19,034 

18,500 

Delicatessen  stores 

11,166 

8,132 

8,000 

Other  food  stores 

15,253 

13,777 

15,000 

Country  general  store 

104,089 

17,701 

16,000 

Total 

585,980 

399,081 

373,000 

*  U.S.  Bureau  of  the  Census,  Retail  Distribution  Part  I,  Vol.  1,  Government 
Printing  Office,  Washington,  D.C.,  1933,  p.  47. 

f  U.S.  Bureau  of  the  Census,  Retail  Trade,  Summary  Statistics,  Vol  1,  Gov- 
ernment Printing  Office,  Washington,  D.C.,  1957,  p.  2-3. 

t  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1959),  p. 
F-5. 

§  Grocery  stores  without  meat  were  not  classified  separately  in  the  1954 
census  and  are  contained  in  the  combination  markets  classification. 

the  large  number  of  stores  (62.8  per  cent)  handling  specific  food 
lines.  However,  the  trend  toward  the  combination  of  at  least  the 
grocery  and  meat  departments  was  under  way.  In  the  year  1929, 
115,549  grocery  stores  handled  meat  and  were  thus  in  the  combina- 
tion market  class.  These  represented  19.8  per  cent  of  all  food  stores. 
The  major  industry  class  was  the  neighborhood  grocery  store  with- 
out meat,  representing  about  one-third  of  all  food  stores. 

While  not  classified  as  a  food  store  by  the  Bureau  of  the  Census, 


190  Supermarketing 

the  country  general  store  did  approximately  60  per  cent  of  its  vol- 
ume in  food  products  in  1929.  Therefore  it  is  included  in  the  study. 
By  1958  the  major  shifts  in  the  number  of  food  stores  can  be 
summed  as  follows: 

1.  The  most  startling  change  was  the  passing  of  the  country  gen- 
eral store.  The  decline  by  more  than  88,000  units  from  a  total  of 
104,089  was  a  decrease  of  85  per  cent. 

2.  The  next  significant  shift  was  the  sharp  increase  in  the  number 
of  combination  markets  ( the  classification  for  supermarkets ) .  These 
increased  by  73,151  units  to  become  the  dominant  member  of  the 
food  store  group.  Supermarkets,  which  numbered  20,413  in  1958, 
accounted  for  27  per  cent  of  the  increase  in  the  combination  market 
class. 

3.  The  group  of  grocery  stores  without  meat  lost  its  major  rela- 
tive and  absolute  status.  However,  an  undisclosed  number  of  this 
class  added  meats  and  became  combination  markets.  This  change- 
over was  also  true  of  the  meat  market,  which  added  groceries  and 
joined  the  combination  movement.  The  exact  number  of  both  types 
that  shifted  to  combination  operation  is  not  known.  But  grocery 
stores  without  meat  and  meat  markets  as  specialty  stores  decreased 
numerically  between  1929  and  1958  by  146,941  units;  combination 
markets  increased  numerically  only  73,151  units  in  this  29-year 
period,  and  a  growing  number  of  these  were  new  supers  under  chain 
ownership.  Therefore  a  substantial  number  of  limited-line  stores 
under  individual  ownership  permanently  closed  their  doors. 

4.  Of  the  specialty  food  group  members,  the  produce  stores,  deli- 
catessens, meat  markets,  and  confectionery  outlets  suffered  losses 
in  numerical  position.  Only  the  bakery  product  stores  improved  their 
numerical  status. 

5.  Supermarkets,  classified  under  combination  stores  in  Table 
10-1,  for  all  purposes  were  nonexistent  in  1929.  As  of  1958  their  total 
was  estimated  at  20,413,  a  mere  5.5  per  cent  of  all  the  food  stores 
and  10.8  per  cent  of  all  the  combination  markets.  Numerically  the 
dominant  class  of  food  stores  in  1958  comprised  the  nonsuper  com- 
bination markets  with  an  estimated  168,287  units  or  about  45  per 


Changes  in  Number  of  Food  Stores  and  Sales  Volume  191 

cent  of  all  food  stores  in  the  country  as  compared  with  the  super- 
markets, which  represented  only  5.5  per  cent  of  all  food  stores. 
However,  a  true  appraisal  of  the  supermarket  movement  is  not  ob- 
tainable from  an  examination  of  the  number  of  supermarkets  alone. 
Their  basic  operating  practice  of  developing  a  large  volume  of  sales 
per  store  must  be  considered  along  with  their  relatively  insignificant 
but  growing  numerical  status. 

6.  There  had  been  a  trend  toward  fewer  small  combination  mar- 
kets. This  movement  had  been  quite  pronounced  in  the  past  decade. 
The  combination  market  class  numerically  declined  from  223,662 
units  in  1948  to  188,700  outlets  in  1958.1  The  supermarket  made 
impressive  numerical  gains  in  this  decade,  as  shown  by  the  statistics 
in  Table  1-2.  However,  the  superette,  a  combination  market  that 
transacts  a  yearly  volume  of  possibly  several  hundred  thousand  dol- 
lars, had  become  an  important  factor  in  the  food  store  group  during 
this  period.  Superettes,  which  numbered  59,700  units  in  1958,  had 
been  growing  in  numerical  importance  along  with  the  supermarket 
to  the  detriment  of  the  small  combination  market  with  yearly  sales 
under  $75,000.2 

CHANGES  IN  THE  SALES  BY  TYPE  OF  FOOD  STORE 

Total  food  store  industry  sales,  including  statistics  for  the  country 
general  store,  increased  from  $12,589  billion  in  1929  to  $50,263  bil- 
lion in  1958,  as  shown  by  the  statistics  in  Table  10-2.  This  gain  of 
400  per  cent  in  food  store  sales  included  a  rise  in  price  plus  an  im- 
provement in  over-all  tonnage.  But  all  membership  classes  by  type 
of  store  did  not  experience  the  same  relative  growth.  The  statistics 
on  the  distribution  of  sales  by  type  of  store,  shown  in  Table  10-2, 
indicate  the  following  salient  changes: 

1.  Grocery  stores  without  meat  commanded  28  per  cent  of  all  food 
store  sales  in  1929.  By  1948  this  group  had  slipped  to  13  per  cent  of 

1  U.S.  Bureau  of  the  Census,  Retail  Trade-General  Statistics,  Part  I,  Vol.  1, 
Government  Printing  Office,  Washington,  D.C.,  1952,  p.  104. 

2  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1959),  p. 
F-9. 


192  Supermarketing 


TABLE  10-2 

Food  Store  Sales  in  the  United  States  by 

Type  of  Store  for  the  Years 

1929,  1954,  and  1958. 


1929  sales 

1954  sales 

1958  sales 

Type 

(in  millions)  * 

(in  millions)  f 

(in  millions)  X 

Grocery  store  (without  meat) 

$  3,449 

$      000  § 

$      000  § 

Combination  markets 

3,904 

34,421 

44,547 

Meat  and  seafood  markets 

1,337 

2,128 

Fruit  and  vegetable  markets 

308 

485 

Confectionery  stores 

572 

568 

Bakery  product  stores 

201 

862 

Delicatessen  stores 

195 

480 

Country  general  store 

1,622 

707 

Other  food  stores 

1,001 

818 

5,716  f 

Total 

$12,589 

$40,469 

$50,263 

*  U.S.  Bureau  of  the  Census,  Retail  Trade-General  Statistics,  Part  I,  Vol.  1, 
Government  Printing  Office,  Washington,  D.C.,  1952,  p.  104. 

f  U.S.  Bureau  of  the  Census,  Statistical  Abstract  of  the  United  States,  Gov- 
ernment Printing  Office,  Washington,  D.C.,  1959,  p.  840. 

t  Ibid.,  p.  833. 

§  Grocery  stores  without  meat  were  not  classified  separately  in  the  1954 
census  or  in  the  1958  estimates.  Statistics  for  this  group  are  contained  in  com- 
bination markets. 

IT  For  1958  the  other  food  stores  classification  contains  all  food  stores  with  the 
exception  of  combination  markets.  The  data  were  not  reported  separately  and 
are  grouped  as  specialty  food  stores. 

all  food  store  sales,  and  the  trend  continued  downward.3  By  1958 
this  class  had  only  72,300  stores,  compared  with  154,277  outlets  in 
1948,  and  the  volume  was  considered  under  $4  billion.  The  Bureau 
of  the  Census  no  longer  considers  it  essential  to  report  this  dwindling 
group. 

2.  Combination  markets  were  last  reported  separately  in  1948,  at 
which  time  they  had  captured  almost  66  per  cent  of  all  food  store 

3  In  1948  there  were  154,277  grocery  stores  without  meat  that  transacted 
$4,027  billion  in  sales.  Combination  markets  of  that  year  numbered  223,662 
units  and  transacted  sales  of  $20,743  billion.  These  data  are  from  the  U.S. 
Bureau  of  the  Census,  Retail  Trade-General  Statistics,  Part  I,  Vol.  1,  Govern- 
ment Printing  Office,  Washington,  D.C.,  1952,  p.  104. 


Changes  in  Number  of  Food  Stores  and  Sales  Volume  193 

sales,  compared  with  31  per  cent  in  1929.  Combination  store  sales 
in  1958  were  estimated  to  transact  at  least  $40  billion  of  the  total 
grocery  and  combination  classification  volume  of  $44,547  billion  or 
over  80  per  cent  of  all  food  store  sales,  as  shown  by  the  statistics  in 
Table  10-2. 

3.  The  supermarket  group  is  contained  in  the  combination  market 
classification  in  Table  10-2.  This  division  had  sales  of  $28.7  billion 
in  1958  and  had  become  the  major  factor  in  both  the  combination 
market  class  and  the  food  store  industry.  From  1929  to  1958  the 
supermarket  classification  raised  its  share  of  food  store  sales  from 
zero  to  57.1  per  cent.  Not  only  had  the  supermarket  made  vast  in- 
roads in  the  volume  of  food  store  sales,  but  the  superettes  also  had 
captured  $11.85  billion  of  the  food  store  sales  in  1958.4  The  small 
grocery  and  combination  stores  as  a  group  in  1958  numbered  195,400 
outlets  and  yet  transacted  a  mere  $3.75  billion  in  food  store  sales.5 
The  small  combination  markets  ( nonsupermarket  combination  stores 
with  sales  under  $75,000  per  year)  suffered  a  severe  loss  in  relative 
industry  position  between  1929  and  1958. 

4.  Sales  of  food  products  by  the  country  general  store  had  fallen 
to  an  insignificant  amount  of  total  food  store  sales. 

5.  Among  the  specialty  food  store  group,  the  only  one  to  show 
significant  progress  and  improve  its  relative  industry  position  was 
the  bakery  products  group. 

CONCLUSIONS  ON  CHANGES  IN  THE  NUMBER  OF 
FOOD  STORES  AND  THEIR  SALES  VOLUME 

If  the  preceding  analysis  is  viewed  in  its  broadest  aspects,  three 
major  features  stand  out: 

1.  The  passing  of  the  country  general  store  as  a  significant  me- 
dium for  the  sale  of  food  products. 

2.  The  attainment  of  major  status  by  the  combination  market  in 
the  food  store  industry  coupled  with  a  noticeable  loss  in  relative 

4  Facts  in  Grocery  Distribution,  op.  cit. 

5  Ibid. 


194  Supermarketing 

position  by  the  single-line  stores.6  (The  supermarket  was  the  major 
exponent  of  multiline  operation  in  the  food  group. ) 

3.  The  successful  combating  of  the  trend  toward  multiline  opera- 
tion by  the  bakery  shops. 

These  three  aspects  are  reviewed  in  the  following  section  to  estab- 
lish the  major  underlying  forces  that  brought  about  these  changes 
and  to  discern  what  role,  if  any,  the  supermarket  played. 

Passing  of  the  Country  General  Store 

The  country  general  store,  which  at  one  time  held  an  important 
place  in  the  retailing  pattern,  dwindled  to  a  position  of  insignifi- 
cance. As  late  as  1929,  12.7  per  cent  of  the  food  store  sales  were 
transacted  by  this  type  of  outlet;  by  1954  sales  were  reduced  to  1.7 
per  cent.  This  decline  can  be  traced  to  both  internal  and  external 
factors.  A  list  of  the  important  internal  failings  includes:  7 

1.  Lack  of  capacity  to  buy  in  quantity 

2.  Small  size  of  stores  preventing  specialization 

3.  Unskilled  buying  because  of  wide  lines  handled 

4.  Incomplete  assortments 

5.  Inadequate  records 

Externally,  the  most  important  factors  have  been:  8 

1.  The  farm-to-city  movement 

2.  Improved  roads  and  transportation 

3.  Increased  importance  of  fashion  merchandise 

4.  Development  of  rural  mail  delivery 

Most  of  the  internal  factors  could  be  lumped  under  one  heading- 
poor  management.  To  this  can  be  added  changes  in  the  buying 

6  A  single-  or  limited-line  store  is  used  here  to  indicate  a  food  store  in  which 
the  sale  of  one  type  of  merchandise,  such  as  bakery  products,  groceries,  or  con- 
fections, predominates.  These  are  distinguished  from  the  multiline  outlets,  ex- 
emplified by  the  combination  market  which  handles  groceries  and  meat  plus 
any  number  of  other  lines.  The  supermarket  is  perhaps  the  best  example  of  an 
exponent  of  multiline  operation  among  the  food  store  group. 

7  C.  F.  Phillips  and  D.  J.  Duncan,  Marketing  Principles  and  Methods  ( Chi- 
cago: Richard  D.  Irwin,  1956),  p.  159. 

8  Ibid.,  p.  177. 


Changes  in  Number  of  Food  Stores  and  Sales  Volume  195 

habits  of  the  rural  people  plus  their  ability  to  travel  great  distances 
to  shop.  Supermarkets  have  attracted  farm  and  rural  patronage.9 
The  ability  of  the  super  to  operate  as  a  low-cost  marketer  of  food 
and  its  ability  to  merchandise  farm  produce  have  earned  the  respect 
and  support  of  many  of  the  farm  folks.10  Although  the  number  of 
supers  in  rural  areas  is  small,  the  trend  has  been  toward  locating  in 
these  rural  and  small  communities.  The  location  of  many  new  supers 
on  or  adjacent  to  arterial  highways  has  attracted  rural  trade.  These 
data  indicate  that  the  supermarket  development  added  to  the  de- 
cline of  the  general  store;  but  in  view  of  other  factors,  the  specific 
influence  of  the  supermarket  cannot  be  assessed. 

Rise  of  the  Combination  Market  and  the 
Decline  of  the  Limited-Line  Food  Store 

In  1931  the  trend  toward  competition  among  different  types  of 
retailers  in  selling  the  same  commodity  was  indicated.  Malcolm  P. 
McNair  wrote: 

It  is  an  era  of  scrambled  merchandising.  Grocery  stores  sell  cigarettes; 
drug  stores  sell  grocery  products;  and  tobacco  stores  sell  razor  blades. 
Grocery  stores  are  on  the  way  to  becoming  food  department  stores.11 

The  theory  that  limited-line  stores  move  toward  multiline  opera- 
tion and  then  back  again  in  a  cyclical  nature  has  been  advanced.12 
However,  after  World  War  I,  there  was  a  pronounced  trend  of  gro- 
cery stores  to  widen  their  lines;  this  continued  on  a  larger  scale,  with 
impetus  given  by  the  success  of  the  supermarket.13 

9  B.  A.  Durrant,  "Why  Go  After  the  Small  Town  Market,"  Chain  Store  Age, 
Grocery  Executive  Edition,  April,  1945,  p.  171. 

i°  L.  L.  Clovis,  "What  the  Farmer  Expects  from  the  Operator,"  Super  Market 
Merchandising,  XII,  no.  11,  November,  1947,  p.  81. 

ii  Malcolm  P.  McNair,  "Trends  in  Large-Scale  Retailing,"  Harvard  Business 
Review,  X,  no.  1,  Fall,  1932,  p.  31. 

i2  Paul  D.  Converse  and  Harvey  W.  Huegy,  The  Elements  of  Marketing 
(5th  ed.;  New  York:  Prentice-Hall,  Inc.,  1952),  p.  399. 

is  "50  Years— 1888  to  1938,"  Printers  Ink,  Vol.  184,  no.  4,  July  28,  1938,  p. 
309. 


196  Supermarketing 

Specifically,  the  causes  of  intertype  competition  among  retailers 
were:  14 

1.  The  large  pool  of  overhead  or  common  costs 

2.  Interrelated  demand  among  several  products 

3.  Changing  consumer  shopping  habits 

4.  Development  of  new  products;  improvement  and  standardiza- 
tion of  old  ones 

The  economic  consequences  of  such  a  movement  had  important 
effects  on  the  structure  of  retail  trade  and  on  the  economy  at  large. 
Ostensibly,  improvement  was  realized  in  the  market  position  of  the 
multiline  distributor  at  the  expense  of  the  limited-line  dealer.  There 
were  possible  shifts  in  the  relative  importance  of  price  competition 
and  nonprice  competition  in  various  lines.  There  was  encouragement 
of  further  legal  restrictions.15 

This  pattern  of  scrambled  merchandising  is  exemplified  by  the 
record  of  the  food  store  industry.  The  1920's  were  largely  an  era  of 
specialty  stores  that  handled  limited-line  merchandise.  However,  the 
trend  toward  multiline  operation  had  started  with  the  growth  of  the 
combination  market.  By  1958  the  combination  market  had  gained 
major  status  in  the  food  store  industry— both  numerically  and  as  to 
volume— at  the  expense  of  all  limited-line  stores  except  bake  shops. 
The  movement  was  given  impetus  by  conversion  to  combination 
markets  of  many  limited-line  outlets.  The  combination  market  move- 
ment was  one  manner  in  which  the  small  merchant  could  attempt  to 
combat  the  spectre  of  the  supermarket. 

The  reasons  for  this  were  two:  (1)  The  small  combination  mart 
generally  was  able  to  reduce  substantially  the  costs  of  products  pur- 
chased.16 (2)  The  small  combination  market  alert  to  new  trends  also 
could  reduce  operating  expenses.  The  nonsuper  combination  market 
was  able  to  reduce  purchase  costs  largely  through  the  media  of  buy- 
ing associations  or  cooperatives.  Many  wholesalers  sponsored  dealer 

14  Richard  N.  Alt,  "Competition  Among  Types  of  Retailers  in  Selling  the 
Same  Commodity,"  Journal  of  Marketing,  XIV,  no.  3,  January,  1948,  p.  442. 

15  Ibid.,  p.  446. 

16  Robert  Mueller,  "Detroit  Dealers  Thrive  on  Modern  Plan,"  Progressive 
Grocer,  XXIX,  no.  2,  February,  1950,  p.  40. 


Changes  in  Number  of  Food  Stores  and  Sales  Volume  197 

plans.17  The  methods  varied,  but  usually  they  enabled  the  small  mer- 
chant to  purchase  grocery  products  at  a  small  percentage  above  the 
cost  to  the  buying  association  plus  a  percentage  for  cartage  to  the 
store. 

The  reduction  in  the  operating  expenses  for  the  small  combination 
market  enabled  many  of  them  to  compete  with  the  supers  insofar  as 
expense  as  a  percentage  of  sales  is  considered.  Lower  operating  ex- 
penses were  effected  through  adoption  of  self-service,  displays,  and 
reduced  credit  and  delivery.18  The  owner  of  the  small  combination 
market  of  1958  generally  was  considered  to  have  more  knowledge 
of  how  to  run  a  store  than  did  his  counterpart  in  the  1920's.  He  was 
able  to  observe  the  supermarket  techniques,  and  buying  associations 
furnished  valuable  service  on  operations  to  its  members. 

Despite  the  fact  that  the  nonsuper  combination  markets  were  able 
to  lower  both  the  cost  of  goods  purchased  and  expenses,  they  ap- 
peared at  a  disadvantage  in  the  intraclass  struggle  with  the  super- 
market. The  latter  opponent  generally  had  facilities  and  resources 
to  adopt  operating  practices  more  in  line  with  the  changing  desires 
of  the  shoppers.  The  super  was  able  to  exploit  more  fully  than  the 
nonsuper  combination  market  the  customer  attractions  of  one-stop 
shopping,  new  suburban  locations,  diversified  lines  of  merchandise, 
and  other  buying  preferences. 

Position  of  the  Bakery  Shops 

The  bakery  products  outlets  successfully  challenged  the  trend  to- 
ward scrambled  merchandise  and  the  desire  for  one-stop  shopping. 
The  bakery  stores  were  at  the  same  time  the  beneficiary  and  the 
victim  of  cross-currents  in  the  economy.  On  the  one  hand,  people 
reduced  their  per  capita  consumption  of  bakery  products  in  favor 
of  other  types  of  food.19  On  the  other,  the  population  grew  numeri- 

"  R.  D.  Tousley,  "Reducing  Distribution  Costs  in  the  Grocery  Field,"  Journal 
of  Marketing,  XII,  no.  4,  April,  1948,  p.  40. 

18  Godfrey  Lebhar,  "Self-Service  Marches  On,"  Chain  Store  Age,  Grocery  Ex- 
ecutive Edition,  September,  1952,  p.  67. 

19  Charles  Slater,  "Statistical  History  of  the  Baking  Industry,"  Baking  Indus- 
try, Vol.  97,  no.  1219,  April  12,  1952,  p.  264. 


198  Supermarketing 

cally.  In  addition,  a  decided  change  in  the  past  twenty  years  re- 
flected the  consumer's  demand  for  convenience  in  the  preparation 
of  meals;  this  brought  about  a  decided  shift  to  store-bought  bakery 
products.20  Yet,  above  all,  consumers  demanded  freshness  in  their 
bakery  products;  and  freshness  was  associated  with  purchase  near 
the  point  of  manufacture— the  bake  shop.  This  single-line  type  of 
food  store  actually  improved  its  industry  position  in  regard  to  sales. 
However,  this  group  is  not  removed  from  supermarket  competition 
inasmuch  as  many  members  of  the  latter  have  attained  sufficient 
size  to  open  their  own  bake  shops  and  compete  on  both  a  price  and 
quality  basis. 

SUMMARY 

In  1929  supermarkets  were  for  practical  purposes  nonexistent.  By  1958 
this  member  of  the  food  store  industry  claimed  only  5  per  cent  of  all  food 
stores  but  57.1  per  cent  of  all  food  store  sales.  The  supermarket  became 
a  highly  successful  exponent  of  scrambled  merchandising  to  the  detriment 
of  the  limited-line  retail  food  merchant.  The  only  limited-line  store  to 
improve  its  relative  industry  position  in  this  29-year  period  was  the  bakery 
products  store.  While  the  latter  was  subject  to  cross-currents  in  the  econ- 
omy, these  stores  succeeded  in  satisfying  consumer  demand  by  emphasiz- 
ing freshness  of  their  products  as  well  as  offering  convenience  in  the 
serving  of  meals.  The  small  combination  market  has  followed  the  super- 
market's technique  of  multiline  operation,  but  as  a  class  it  has  not  been 
able  to  withstand  the  competition  offered  by  the  supermarket  industry, 
which  has  more  resources  at  its  command. 

20  Bid.,  p.  47. 


11 


CHANGES  IN  THE  SALES 
OF  MAJOR  PRODUCT 
LINES  BY  TYPES  OF 
FOOD  STORE  OUTLETS 


INTRODUCTION 

This  chapter  continues  the  analysis  of  changes  in  the  food  store 
sales  pattern  between  1929  and  1958.  In  the  preceding  chapter,  sig- 
nificant changes  in  number  and  sales  of  different  types  of  food  stores 
were  discerned.  The  purpose  of  this  chapter  is  to  examine  shifts  in 
the  sales  of  certain  major  product  lines  transacted  by  different  types 
of  food  stores. 

Analysis  is  made  at  the  same  points  in  time-1929,  1954,  and  1958 
-and  for  the  same  reasons  advanced  in  Chapter  10.  The  major  prod- 
uct classes  selected  for  study  include: 

1.  Meat,  poultry,  and  seafood 

2.  Fresh  fruit  and  vegetables  or  produce 

3.  Confections 

4.  Bakery  products 

5.  Canned  goods,  grocery  items 

6.  Nonfood  lines 


199 


200  Supermarketing 

SALES  OF  MAJOR  PRODUCT  CLASSES  IN 
SUPERMARKETS 

The  1958  supermarket  handled  5,600  separate  items.1  These  can  be 
grouped  primarily  by  departments  under  eight  major  headings. 
Three  separate  studies  recently  were  completed  which  measure  the 
relative  importance  of  various  product  classes;  these  findings,  ex- 
pressed as  a  percentage  of  sales,  are  shown  in  Table  11-1.  Individual 

TABLE  11-1 

Results  of  Three  Recent  Studies  on  the  Percentage  of  Sales 
of  Major  Product  Classes  Transacted  by  Supermarkets. 


Food  Town  *        Super  Valu  f        Food  chain  \ 
Product  class  study,  %  study,  %  survey,  % 


Meats 

28.11 

22.42 

25.10 

Dairy  products 

8.61 

11.51 

10.30 

Bakery  products 

2.67 

5.76 

4.30 

Frozen  foods 

4.14 

4.78 

4.50 

Confections 

1.48 

1.85 

1.60 

Produce 

12.76 

8.79 

9.90 

Grocery  items 

38.01 

37.14 

36.10 

Nonfoods 

4.22 

7.75 

8.20 

100.00 

100.00 

100.00 

*  "The  Food  Town  Study,"  Progressive  Grocer,  XXXV,  no.  1,  January,  1955, 
p.  49. 

f  "How  an  Average  Customer  Spends  Her  Super  Market  Dollars — Super  Valu 
Markets,"  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1959), 
p.  F-20. 

|  "What  Do  Food  Chain  Stores  Sell,"  Chain  Store  Age,  Grocer  Executive 
Edition,  July,  1959,  p.  47. 

markets  may  have  product  statistics  that  vary  from  these  data  as  a 
result  of  size,  finances,  facilities,  location,  competitive  factors,  and 
policy.  But  approximately  25  per  cent  of  a  supermarket's  sales  is  in 
meat,  10  per  cent  each  in  produce  and  dairy,  4  to  5  per  cent  in  frozen 

1  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1959),  p. 
F-3. 


Changes  in  Sales  of  Major  Product  Lines  201 

foods,  about  4  to  5  per  cent  in  bakery  products  ( exclusive  of  pack- 
aged cookies  and  crackers),  and  from  4  to  9  per  cent  in  nonfood 
lines.  Confections,  which  average  between  1  and  2  per  cent  of  sales, 
normally  are  considered  part  of  the  grocery  line,  but  this  class  is 
recorded  separately  since  the  impact  of  the  super  on  confectionery 
stores  is  assessed  later  in  this  chapter. 

A  breakdown  of  sales  of  the  multitude  of  grocery  products  is  given 
in  Table  11-2.  The  gross  margin  percentage  for  these  grocery  items 


TABLE  11-2  * 

How  an  Average  Customer  Spends  Her  Supermarket 

Dollars  for  Grocery  Products  and  the  Percentage 

of  Gross  Margin  on  Sales  of  These  Items. 


%  total 

%  gross  margin 

Product  group 

supermarket  sales 

of  sales 

Beverages 

5.42 

12.1 

Household  and  laundry  supplies 

2.59 

28.3 

Vegetables,  canned 

2.48 

21.4 

Cookies  and  crackers 

2.20 

25.3 

Paper  products 

2.11 

23.4 

Soaps  and  detergents 

2.01 

10.5 

Fruit,  canned 

1.82 

21.6 

Baking  needs,  flour 

1.45 

16.5 

Breakfast  foods 

1.44 

18.1 

Soups 

1.41 

15.0 

Baking,  batter  mixes 

1.36 

17.5 

Fish,  canned 

1.09 

19.4 

Jams,  jellies,  and  spreads 

1.04 

23.6 

Sugar 

1.04 

8.0 

Snack  and  party  foods 

1.01 

23.9 

Baby  foods 

0.99 

14.1 

Juices,  canned 

0.86 

19.4 

Pet  foods 

0.70 

20.2 

Salad  dressings,  mayonnaise 

0.68 

15.5 

Shortening 

0.66 

9.7 

Condiments,  sauces 

0.56 

18.4 

Pickles,  olives,  relishes 

0.55 

26.7 

202 

Supermarketing 

Table  11-2 

(Continued) 

Desserts 

Prepared  foods,  canned 

Salt,  seasonings,  spices 

0.54 
0.42 
0.39 

16.7 

20.8 
24.6 

Milk,  canned  and  dry 
Macaroni  products,  dry- 
Meat,  canned 
Fruits,  dried 
Vegetables,  dried 

0.38 
0.36 
0.31 
0.30 
0.25 

13.5 

18.8 
21.0 
22.1 
25.4 

Syrups  and  molasses 
Chinese  foods 
Diet  foods 
Pet  supplies 
Misc.  grocery  items 

0.23 
0.16 
0.15 
0.02 
0.16 

17.9 

24.3 
27.0 
29.8 
25.9 

Total  grocery  products 
Total  all  others 

37.14 
62.86 

18.2 

100.00 

*  Facts  in  Grocery  Distribution  (New  York:  Progressive  Grocer,  1959),  d. 
F-20. 

also  is  included.  Again,  individual  markets  may  have  sales  that  vary 
from  these  findings  inasmuch  as  this  industry  is  so  diverse.  In  the 
wide  range  of  products  handled  by  a  super,  the  importance  of  bever- 
ages, household  and  laundry  supplies,  paper  products,  and  soaps  and 
detergents  is  apparent. 

SALES  OF  MEAT  PRODUCTS,  POULTRY,  AND 
SEAFOOD  BY  TYPE  OF  FOOD  STORE 

(This  category  includes  the  sale  of  all  fresh  meat,  poultry,  fresh 
fish,  and  other  fresh  seafoods,  plus  meat  provisions  such  as  cured 
hams,  bacon,  and  sausage. ) 

In  1929  the  meat  market,  a  limited  line  store,  was  the  principal 
outlet  for  meat  and  related  products,  as  shown  by  the  statistics  in 
Table  11-3.  By  1954  total  food  store  sales  of  meat  in  the  United 
States  soared  to  more  than  $10  billion.  The  rise  was  due  in  part  to 
an  increase  in  population  and  to  a  higher  per  capita  consumption  of 
meat  products-from  139  lb  in  1929  to  164  lb  of  meat  per  inhabitant 


Changes  in  Sales  of  Major  Product  Lines  203 


TABLE  11-3 


Estimated  Meat,  Poultry,  and  Seafood  Sales  by  Major  Type  of 
Food  Store  Outlet  for  the  Years  1929  and  1954. 


1929  1954 


Sales  *  Sales  \ 

Type  of  store  (inbiUions)       %  total       (in  billions)       %  total 


Meat  markets  $1,245  54.4  $  2,128  19.9 

N°maSCOmbiliati0n  1,045  45.6  4,547 1         42.6 

sSL  0  0.0  3,995  1         37.5 


Total  $2,290  §        100.0  $10,670  §        100.0 


*  U.S.  Bureau  of  the  Census,  Retail  Distribution— Food  Retailing,  No.  R-83, 
Government  Printing  Office,  Washington,  D.C.,  1934,  p.  82 

f  U.S.  Bureau  of  the  Census,  Retail  Trade,  No.  R-2-2,  Government  Printing 
Office,  Washington,  D.C.,  1957,  pp.  2-333. 

1  Total  grocery  and  combination  market  sales  of  meat  products  for  1954  were 
estimated  at  $8,542  billion  in  What  the  Public  Spends  for  Grocery  Store  Prod- 
ucts (New  York:  Topics  Publishing  Co.).  Supermarket  sales  for  1954  were  esti- 
mated at  $15,980  billion  in  Table  1-2.  On  the  assumption  that  25  per  cent  ot  a 
supermarket's  sales  are  in  meat  products,  supermart  sales  of  meat  m  1954  were 
estimated  at  $3,995  billion.  Nonsuper  combination  market  sales  ot  meat  are  the 
difference  between  total  grocery  and  combination  market  sales  of  meat  and  the 
meat  sales  of  supermarkets.  , 

§  These  totals  do  not  include  the  sale  of  meat  products  in  other  food  stores 
such  as  country  general  stores  and  delicatessens.  Sales  through  these  channels 
are  considered  relatively  insignificant. 

in  1954.2  In  addition,  the  wholesale  price  index  for  meat  products 
(1947  to  1949  equals  100)  rose  from  48.1  in  1929  to  91.5  in  1954.3 
Among  the  stores,  the  nonsuper  combination  market  became  the 
major  retailer  of  meat,  followed  closely  by  the  supermarket,  which 
made  substantial  progress  during  this  period,  rising  from  negligible 
sales  of  meat  in  1929  to  37.5  per  cent  in  1954. 

2  Data  on  meat  consumption  are  found  in  Table  3-2. 

3  Changes  in  the  wholesale  price  of  meat  are  considered  generally  to  indicate 
changes  in  the  same  direction  in  the  retail  price  of  meat.  Statistics  are  from  the 
U.S.  Department  of  Commerce,  reported  in  "Meat  and  Dairy  Products  Stand- 
ard and  Poor's  Industrial  Surveys,  Section  3,  October,  1959,  p.  4.  This  same 
source  reported  that  consumption  of  meat  per  capita  rose  3.7  per  cent  between 
1954  and  1958  and  that  the  wholesale  price  index  for  meat  products  rose  18 
per  cent,  or  from  91.5  to  107.9,  during  this  same  four-year  interval. 


204  Supermarketing 

In  the  years  1954  to  1958,  further  shifts  in  the  pattern  of  meat  sales 
resulted,  to  the  detriment  of  the  limited-line  stores  and  the  smaller 
combination  markets.  Statistics  of  the  approximate  1958  sale  of  meat 
products  by  major  food  stores  were:  4 

Meat  markets $2,128  billion 

Nonsuper  combination  markets $4,917  billion 

Supermarkets $7,175  billion 

The  supermarket  became  the  dominant  factor  in  the  sale  of  meat 
products,  grossing  more  than  50  per  cent  of  the  volume.  Small  meat 
markets  and  combination  markets  seemed  destined  to  becoming  the 
new  "Vanishing  American." 

SALES  OF  FRESH  FRUIT  AND  VEGETABLES 
BY  TYPE  OF  FOOD  STORE 

(This  category  includes  all  items  classed  by  the  Census  as  fresh 
fruits  and  vegetables.  It  does  not  contain  frozen  or  canned  produce. ) 

For  the  year  1929  the  "big  three"  in  the  sale  of  fresh  fruit  and 
vegetables  among  the  major  food  stores,  as  indicated  in  Table  11-4, 
were:  grocery  stores  without  meat  (claiming  32.5  per  cent  of  total 
U.S.  fresh  fruit  and  vegetable  sales),  nonsuper  combination  markets 
(34.8  per  cent),  and  fruit  and  vegetable  stores  (22  per  cent).  The 
country  general  store  also  was  significant,  with  about  11  per  cent 
of  the  produce  sales  by  major  food  outlets  for  fruits  and  vegetables. 

In  the  25  year  interval,  produce  sales  among  the  food  stores  in- 
creased to  over  $4  billion.  The  price  level  rose;  the  population  in- 

4  The  1954  meat  market  had  average  sales  of  $77,700  per  outlet.  In  1958  this 
same  market  would  have  its  sales  raised  to  $94,600  as  a  result  of  a  3.7  per  cent 
increase  in  the  per  capita  consumption  of  meat  and  an  18  per  cent  rise  in  the 
price  index  of  meat  products.  However,  by  1958  there  was  a  decrease  in  the 
number  of  units  to  22,500  which,  when  multiplied  by  the  new  average  sales  per 
store,  gave  the  $2,128  billion  estimate  for  meat  markets. 

Total  grocery  and  combination  market  sales  of  meat  products  in  1958  were 
estimated  by  the  Topics  Publishing  Company  in  its  yearly  study  at  $12,092  bil- 
lion. Supermarket  sales  in  1958  were  $28.7  billion,  of  which  25  per  cent  were 
estimated  to  be  in  meat  products.  Thus  supermarket  sales  of  meat  products  were 
estimated  at  $7,175  billion.  Nonsuper  combination  market  sales  of  meat  prod- 
ucts is  the  difference  between  total  grocery  and  combination  market  sales  of 
meat  and  supermarket  sales  of  meat. 


Changes  in  Sales  of  Major  Product  Lines  205 

TABLE  11-4 

Estimated  Fresh  Fruit  and  Vegetable  Sales  by  Major  Type  of 
Food  Store  Outlet  for  the  Years  1929  and  1954. 


1929 

1954 

Sales  a 

Sales 

Type  of  store 

(in  millions) 

%  total 

(in  millions) 

%  total 

Fruit  and  vegetable 

$   285 

22.0 

$    485  6 

10.8 

Grocery  stores  without  meat 

421 

32.5 

000  o 

— 

Nonsuper  combination 

markets 

451 

34.8 

2,416  <* 

53.7 

Supermarkets 

0 

0 

1,598  * 

35.5 

Country  general  store 

139 

10.7 
100.0 

e 

— 

Total 

$1,296  / 

$4,499  / 

100.0 

<*  U.S.  Bureau  of  the  Census,  Retail  Distribution— F ood  Retailing,  No.  R-83, 
Government  Printing  Office,  Washington,  D.C.,  1934,  p.  82. 

&  U.S.  Bureau  of  the  Census,  Retail  Trade,  No.  R-2-2,  Government  Printing 
Office,  Washington,  D.C.,  1957,  pp.  2-333. 

0  This  class  has  become  relatively  insignificant,  and  the  data  are  included  un- 
der nonsuper  combination  markets  by  the  Bureau  of  the  Census. 

d  Total  grocery  and  combination  market  sales  of  produce  for  1954  were  esti- 
mated at  $4,014  billion  in  What  the  Public  Spends  for  Grocery  Store  Products 
(New  York:  Topics  Publishing  Co.).  Supermarket  sales  for  1954  were  estimated 
at  $15,980  billion  in  Table  1-2.  On  the  assumption  that  10  per  cent  of  a  super- 
market's sales  are  in  produce,  supermarket  sales  of  fruit  and  vegetables  in  1954 
were  estimated  at  $1,598  billion.  Nonsuper  combination  market  and  grocery 
store  sales  of  produce  are  the  difference  between  total  grocery  and  combination 
market  sales  of  produce  and  the  produce  sales  of  supermarkets. 

e  This  type  of  outlet  became  relatively  insignificant  in  the  sale  of  produce  by 
1954,  with  sales  estimated  well  below  $100  million. 

/  These  totals  do  not  include  the  sale  of  fresh  fruits  and  vegetables  in  other 
food  stores  such  as  delicatessens.  Sales  through  these  other  channels  are  con- 
sidered relatively  insignificant. 

creased;  but  most  significantly,  changes  took  place  in  the  dietary 
habits.  There  was  a  shift  from  consumption  of  bulky,  lower-cost 
produce  of  the  potato  type  to  greater  consumption  of  the  higher 
cost  leafy  green  vegetables  and  citrus  fruits. 

The  1954  sales  pattern  of  produce  differed  substantially  from  that 
of  1929.  The  country  general  store  became  almost  extinct.  Grocery 
stores  without  meat  had  lower  fresh  fruit  and  vegetable  sales  than 


206  Supermarketing 

those  of  1929  and  had  become  insignificant  in  this  area.5  Both  non- 
super  combination  markets  and  supermarts  gained  substantially  in 
absolute  and  relative  positions  in  the  sale  of  produce  during  this 
25-year  era. 

In  the  years  1954  to  1958,  further  shifts  in  the  pattern  of  produce 
sales  resulted,  to  the  detriment  of  the  limited-line  stores  and  the 
smaller  combination  markets.  Statistics  on  the  approximate  1958  sale 
of  produce  by  the  three  major  food  stores  were:  6 

Fruit  and  vegetable  stores $    510  million 

Grocery  stores  and  nonsuper  combination 

markets $2,020  million 

Supermarkets $2,870  million 

The  supermarket  has  become  the  dominant  factor  in  the  sale  of  fresh 
fruit  and  vegetables  with  more  than  50  per  cent  of  the  volume.  Small 
fruit  and  vegetable  markets,  grocery  stores  without  meat,  and  small 
combination  markets  are  suffering  substantially  from  the  stepped-up 
activities  of  the  supermarket  in  the  merchandising  of  produce  in  the 
past  few  years. 

5  In  1948  there  were  154,277  grocery  stores  without  meat  that  transacted 
$346  million  in  sales  of  produce.  These  data  are  from  the  U.S.  Bureau  of  the 
Census,  Retail  Trade — General  Statistics,  Part  I,  Vol.  1,  Government  Printing 
Office,  Washington,  D.C.,  1952,  p.  104.  By  1954  the  number  of  grocery  stores 
without  meat  dwindled  to  an  estimated  119,000  units,  according  to  Progressive 
Grocer. 

6  The  1954  fresh  fruit  and  vegetable  market  had  an  average  sales  volume  of 
$37,000.  In  1958  this  same  market  would  have  its  sales  raised  to  $42,500  as  a 
result  of  a  15  per  cent  increase  in  the  value  of  produce  consumed  at  retail  prices 
during  this  four-year  interval,  as  reported  by  Topics  Publishing  Company  in  its 
annual  reports  on  What  the  Public  Spends  for  Grocery  Store  Products.  However, 
by  1958  there  was  a  decrease  in  the  number  of  units  to  12,000  which,  when 
multiplied  by  the  new  average  sales  per  store,  gave  the  $510  million  estimate 
for  fruit  and  vegetable  markets. 

Total  grocery  and  combination  market  sales  of  produce  in  1958  were  esti- 
mated by  the  Topics  Publishing  Company  in  its  yearly  study  at  $4,890  million. 
Supermarket  sales  in  1958  were  $28.7  billion,  of  which  10  per  cent  were  esti- 
mated to  be  in  produce.  Thus  supermarket  sales  of  fresh  fruits  and  vegetables 
were  estimated  at  $2,870  million.  Nonsuper  combination  market  and  grocery 
store  sales  of  produce  are  the  difference  between  total  grocery  and  combination 
market  sales  of  produce  and  supermarket  sales  of  fresh  fruits  and  vegetables. 


Changes  in  Sales  of  Major  Product  Lines  207 

SALES  OF  CONFECTIONERY  PRODUCTS 
BY  TYPE  OF  FOOD  STORE 

(Included  in  the  category  of  confectionery  products  are  bar  candy, 
gum,  packaged  confections,  bulk  candy,  candy  specialties,  and 
nuts.) 

Although  candy  and  confections  can  be  bought  in  many  types  of 
retail  establishments,  the  custom  of  the  1920's  was  to  buy  them 
largely  in  the  little  neighborhood  candy  store.  In  1929  confectionery 
stores  transacted  67  per  cent  of  all  confectionery  sales  in  the  food 
store  group  and  45  per  cent  of  the  total  $512  million  sales  retailed 
by  both  food  and  nonfood  outlets.7  The  nonfood  trio  of  restaurants, 
drugstores,  and  variety  shops  also  was  significant  in  the  retailing  of 
confections. 

But  from  1929  to  1954  many  changes  in  the  marketing  of  confec- 
tions resulted  in  taking  more  and  more  of  the  candy  sales  away  from 
the  specialty  confectionery  store.  The  confectionery  group  suffered 
a  68  per  cent  reduction  in  the  number  of  outlets  in  1954,  compared 
with  the  number  in  1929.8  Dietary  changes  over  the  25-year  interim 
influenced  the  purchase  of  confectionery  products;  per  capita  con- 
sumption increased  only  from  15.7  to  16.1  lb  between  1929  and 
1954.9  Retail  dollar  sales  rose  with  the  growth  of  population  and 
with  an  increase  in  the  average  price  of  confections  from  20.5  cents 
to  37.5  cents  per  pound  during  this  same  interval.10  There  was,  how- 
ever, an  important  change  in  the  type  of  confections  produced, 
namely,  a  shift  to  the  branded,  prepackaged  candy  bar.  These  nickel 
and  dime  bars  together  with  gum  and  related  items  were  regarded 
as  convenience  goods  and  were  given  wide  distribution  in  a  variety 
of  new  outlets.  Vending  machines  became  large  sellers  of  confec- 
tions. Theaters  discovered  additional  revenue  from  the  sale  of  con- 

7  U.S.  Bureau  of  the  Census,  Retail  Distribution — Food  Retailing,  No.  R-83, 
Government  Printing  Office,  Washington,  D.C.,  1934,  pp.  82-86. 

8  See  Table  10-1. 

9  U.S.  Department  of  Commerce,  Confectionery  Sales  and  Distribution,  Gov- 
ernment Printing  Office,  Washington,  D.C.,  1957,  p.  49. 

™Ibid. 


208  Supermarketing 

fections.  The  small  candy  store  next  to  the  theater  became  a  rare 
phenomenon. 

By  1954  three  new  outlets  for  confections,  namely,  vending  ma- 
chines, theaters,  and  supermarkets,  transacted  a  total  volume  larger 
than  the  confectionery  store,  as  shown  by  the  data  in  Table  11-5. 


Sales  of  Confections  by  Certain  Major 

Retail 

Outlets  for  the  Years  1929  and  1954. 

1929* 

1954 

Outlet 

(in  millions) 

(in  millions) 

Confectionery  stores 

$230 

$568  f 

Grocery  stores  and  nonsuper 

combination  markets 

87 

177  t 

Supermarkets 

_ 

240| 

Vending  machines 

— 

165  § 

Theaters 

— 

160  f 

*  U.S.  Bureau  of  the  Census,  Retail  Distribution — Food  Retailing,  No.  R-83, 
Government  Printing  Office,  Washington,  D.C.,  1934,  pp.  82-86. 

f  U.S.  Bureau  of  the  Census,  Retail  Trade,  No.  R-2-2,  Government  Printing 
Office,  Washington,  D.C.,  1957,  pp.  2-333. 

t  1954  supermarket  sales  were  $15,980  billion,  as  shown  by  data  in  Table  1-2. 
On  the  assumption  that  1.5  per  cent  of  a  super's  sales  are  in  confections,  the 
1954  figure  for  supermarket  sales  is  $240  million.  Total  grocery  and  combina- 
tion market  sales  were  $417  in  1954,  according  to  the  Topics  Publishing  Com- 
pany. Therefore  grocery  store  and  nonsuper  combination  market  sales  are  $417 
million  less  $240  million  supermarket  sales,  or  $177  million. 

§  U.S.  Bureau  of  the  Census,  Retail  Trade  Summary  Statistics,  Government 
Printing  Office,  Washington,  D.C.,  1957,  pp.  1-6. 

ft  U.S.  Bureau  of  the  Census,  Retail  Trade-Selected  Service  Trades,  Govern- 
ment Printing  Office,  Washington,  D.C.,  1957,  p.  16. 

Since  1954,  both  supermarkets  and  vending  machines  have  increased 
their  relative  market  shares,  as  have  the  theaters,  which  have  been 
aided  by  the  expansion  to  outdoor  movies;  yet,  the  confectionery 
store  group  decreased  numerically  by  more  than  500  units  according 
to  estimates  by  Progressive  Grocer.  Supermarkets  merchandise  can- 
dies at  the  check-out  counter  where  they  utilize  little  display  space 
and  are  ideal  as  an  impulse  purchase;  supers  sell  candies  in  volume 
at  a  narrow  gross  margin  and  on  a  low  price  basis.  If  a  statistic  of 


Changes  in  Sales  of  Major  Product  Lines  209 

1.5  per  cent  is  used  to  represent  candy  sales  in  a  supermarket  as  a 
percentage  of  total  super  volume,  the  1958  supermarket  industry 
sold  over  $400  million  in  confections  and  is  closing  in  rapidly  on  the 
confectionery  store. 

SALES  OF  BAKERY  PRODUCTS  BY 
TYPE  OF  FOOD  STORE 

(This  category  of  bakery  products  includes  bread,  bread  products, 
pastries,  doughnuts,  and  related  items.  It  does  not  contain  crackers, 
packaged  cookies,  and  pretzels. ) 

The  principal  outlet  for  the  $614  million  food  store  volume  of 
bakery  products  in  1929  was  the  neighborhood  bake  shop  (with 
31.4  per  cent  of  U.S.  sales  of  baked  goods),  followed  closely  by  the 
combination  markets  (30.7  per  cent)  and  grocery  stores  without 
meat  (26.2  per  cent).  These  statistics  are  found  in  Table  11-6.  The 
figures  do  not  separately  list  house-to-house  sales  of  bakery  prod- 
ucts; these  are  estimated  to  have  been  negligible  during  this  period 
(well  under  5  per  cent  of  the  total  bakery  product  sales  in  food 
stores )  although  their  importance  to  the  industry  in  recent  years  has 
increased.11 

During  the  interval  between  1929  and  the  1950's,  there  was  a  de- 
cided shift  from  baking  at  home  to  the  purchase  of  store  products.12 
This  was  attributed  to  women's  demand  for  greater  convenience  in 
the  preparation  and  serving  of  food.  This  change  in  buying  habits, 
the  population  increase,  and  the  rise  in  the  price  level  of  bakery 
products  more  than  compensated  for  the  decrease  in  per  capita  con- 
sumption of  bakery  goods.13  Major  food  store  sales  of  bakery  prod- 
ucts, reported  in  Table  11-7,  increased  substantially  in  this  period. 
However,  the  bake  shops  were  able  to  prosper  and  had  sales  rocket- 

11  This  estimate  was  made  in  an  interview  on  March  1,  1954,  by  Charles 
Slater,  Research  Economist,  Bakery  Industry  Study  conducted  at  Northwestern 
University. 

12  Charles  Slater,  "Statistical  History  of  the  Baking  Industry,"  Baking  Indus- 
try, Vol.  97,  no.  1219,  April  12,  1952,  p.  266. 

is  Ibid. 


210  Supermarketing 


TABLE  11-6 

Estimated  Bakery  Product  Sales  by  Major  Type  of 
Food  Store  Outlet  for  the  Years  1929  and  1954. 


1929 

1954 

Sales  a 

Sales 

Type  of  store 

(in  millions) 

%  total 

(in  millions) 

%  total 

Bakery  products 

$170 

31.4 

$    862  & 

29.6 

Grocery  without  meat 

142 

26.2 

000  e 

Nonsuper  combination 

markets 

166 

30.7 

1,343  * 

45.9 

Supermarkets 

0 

0 

719  <* 

24.5 

Country  general  store 

63 

11.7 
100.0 

000^ 

— 

$541/ 

$2,924  / 

100.0 

a  U.S.  Bureau  of  the  Census,  Retail  Distribution — Food  Retailing,  No.  R-83, 
Government  Printing  Office,  Washington,  D.C.,  1934,  p.  86. 

&  U.S.  Bureau  of  the  Census,  Retail  Trade,  No.  R-2-2,  Government  Printing 
Office,  Washington,  D.C.,  1957,  pp.  2-333. 

°This  class  has  become  relatively  insignificant,  and  therefore  the  data  are 
included  under  nonsuper  combination  markets  by  the  Bureau  of  the  Census. 

d  Total  grocery  and  combination  markets  sales  of  bakery  products  for  1954 
were  estimated  at  $2,062  billion  in  What  the  Public  Spends  for  Grocery  Store 
Products  (New  York:  Topics  Publishing  Co.).  Supermarket  sales  for  1954  were 
estimated  at  $15,980  billion  in  Table  1-2.  On  the  assumption  that  4.5  per  cent 
of  a  supermarket's  sales  are  in  bakery  goods,  supermarket  sales  of  bakery  items 
in  1954  were  estimated  at  $719  million.  Nonsuper  combination  market  and 
grocery  store  sales  of  bakery  products  are  the  difference  between  total  grocery 
and  combination  market  sales  of  baked  goods  and  the  bakery  sales  of  super- 
markets. 

e  This  type  of  outlet  became  relatively  insignificant  in  the  sale  of  bakery  items 
by  1954  with  sales  estimated  well  below  $100  million. 

/  These  totals  do  not  include  the  sale  of  bakery  products  in  other  food  stores 
such  as  delicatessens  and  home  delivery.  Sales  through  these  other  channels  are 
considered  relatively  small. 

ing  to  $862  million.  The  supermarket  by  1954  also  became  a  major 
factor  in  this  field  by  capturing  26.5  per  cent  of  the  volume  for 
baked  goods.  Country  stores,  grocery  stores  without  meat,  and  the 
small  combination  markets  appear  to  have  suffered  substantially 
because  of  the  supermarket. 

In  the  years  1954  to  1958,  further  shifts  in  the  pattern  of  sales  for 


Changes  in  Sales  of  Major  Product  Lines  211 

bakery  products  resulted,  to  the  detriment  of  the  smaller  combina- 
tion markets  and  even  to  some  extent  in  the  relative  position  of  the 
limited-line  bake  shops.  Statistics  on  the  approximate  1958  sale  of 
bakery  goods  by  the  three  major  food  stores  were:  14 

Bakery  shops $    981  million 

Grocery  stores  and  nonsuper  combination 

markets $1,120  million 

Supermarkets $1,292  million 

The  supermarket  became  the  dominant  factor  in  the  sale  of  baked 
goods  in  1958  with  approximately  38  per  cent  of  the  volume  trans- 
acted by  the  major  outlets.  Supermarkets  intensified  activities  in  this 
area  inasmuch  as  a  growing  number  of  chains  reached  sufficient  size 
to  manufacture  and  market  their  own  packaged  bakery  products. 
These  items  were  sold  under  the  chain  brand  as  a  good  value  in 
terms  of  price,  size,  and  quality,  and  thus  attracted  shoppers.  This 
policy  of  merchandising  by  stressing  good  value  of  the  frequently 
purchased  baked  goods  has  overcome  to  some  extent  the  desire  on 
the  part  of  the  consumer  to  purchase  oven-fresh  products  at  or  near 
the  point  of  manufacture.  Thus  baked  goods  form  an  integral  part 
of  marketing  strategy  by  a  super  and  offer  an  important  source 
of  profit  to  the  integrated  firm  of  proper  size.  Supermarket  activities 
in  this  area  also  have  intensified  competition  with  the  large  bakery 
manufacturers  who  market  packaged  goods  regionally  or  nationally. 

14  The  1954  bake  shop  had  an  average  sales  volume  of  $45,000.  In  1958  this 
same  market  would  have  its  sales  raised  to  $53,000  by  an  18  per  cent  increase 
in  the  value  of  bakery  products  consumed  at  retail  prices  during  this  four  year 
interval  as  reported  by  Topics  Publishing  Company  in  its  annual  reports  on 
What  the  Public  Spends  for  Grocery  Store  Products.  However,  by  1958  there 
was  a  decrease  in  the  number  of  units  to  18,500  which,  when  multiplied  by  the 
new  average  sales  per  store,  gave  the  $981  million  estimate  for  bakery  product 
stores. 

Total  grocery  and  combination  market  sales  of  bakery  products  in  1958  were 
estimated  by  the  Topic  Publishing  Company  in  its  yearly  study  at  $2,412  billion. 
Supermarket  sales  in  1958  were  $28.7  billion,  of  which  4.5  per  cent  were  esti- 
mated to  be  in  baked  goods.  Thus  supermarket  sales  of  bakery  products  were 
estimated  at  $1,292  billion.  Nonsuper  combination  market  and  grocery  store 
sales  of  baked  goods  are  the  difference  between  total  grocery  and  combination 
market  sales  of  bakery  products  and  supermarket  sales  of  baked  goods. 


212  Supermarketing 

SALES  OF  CANNED  GOODS  AND  GROCERY  ITEMS 
BY  GROCERY  STORES  AND  COMBINATION  MARKETS 

The  term  grocery  items  has  been  used  as  a  catch-all  classification. 
Its  definition  has  been  complicated  and  subject  to  change  by  the 
wide  assortment  of  food  and  nonfood  lines  added  by  the  grocery 
stores  and  combination  markets.  The  items  listed  in  this  classifica- 
tion are  found  in  Table  11-2. 

A  variety  of  retail  stores  today  handles  canned  goods  and  grocery 
items.  However,  only  the  major  outlets  for  the  years  1929  and  1958 
are  contained  in  the  data  of  Table  11-7.  In  1929  the  grocery  stores 
without  meat  were  the  major  retailers  of  canned  goods  and  grocery 
items.  From  then  until  1958,  the  grocery  store  without  meat  suffered 


TABLE  11-7 

Sales  of  Grocery  Product  Items  by  Major  Food 
Store  Outlets  for  the  Years  1929  and  1958. 

1929 

1958 

Type  of  outlet 

Sales  * 
(in  billions) 

%  total 

Sales  f 
(in  billions) 

%  total 

Grocery  stores  without 

meat 
Nonsuper  combination 

markets 
Supermarkets 

$2,853 

2.347 
0 

54.9 

45.1 
0 

100.0 

000  t 

$  6.531 
10.659 

37.9 
62.1 

Total 

$5,200 

$17,190 

100.0 

*  U.S.  Bureau  of  the  Census,  Retail  Distribution — Food  Retailing,  No.  R-83, 
Government  Printing  Office,  Washington,  D.C.,  p.  82. 

f  Total  grocery  and  combination  market  sales  of  grocery  items  for  1958  were 
estimated  at  $17,190  billion  in  What  the  Public  Spends  for  Grocery  Store  Prod- 
ucts (New  York:  Topics  Publishing  Co.).  Supermarket  sales  for  1958  were  esti- 
mated at  $28.7  billion  in  Table  1-2.  From  Table  11-2,  grocery  items  are  repre- 
sented as  37.14  per  cent  of  total  supermarket  sales.  This  percentage  applied  to 
total  supermarket  sales  furnished  the  $10,659  billion  estimate  for  supermarkets. 
Nonsuper  combination  market  and  grocery  store  sales  of  grocery  items  are  the 
difference  between  total  sales  of  $17,190  billion  and  supermarket  sales  of 
$10,659  billion. 

t  This  class  has  become  relatively  insignificant  as  to  volume,  and  the  data  are 
included  under  nonsuper  combination  markets  by  the  Bureau  of  the  Census. 


hanges  in  Sales  of  Major  Product  Lines  213 

a  severe  loss,  in  relative  numbers  and  volume,  to  both  the  nonsuper 
combination  market  and  the  supermarket.  Again,  the  shift  in  buy- 
ing habits,  price  competition  from  more  efficient  marketers  of  food, 
and  the  ability  of  the  large  multiline  outlet  to  spread  overhead  costs 
over  a  wider  line  enabled  supermarkets  to  attain  major  status  in  this 
area. 

SALES  OF  NONFOOD  PRODUCTS  IN  GROCERY 
STORES  AND  COMBINATION  MARKETS 

Nonfood  products  in  grocery  stores  and  combination  markets  do 
not  include  food  or  food  products  for  consumption.  But  the  classi- 
fication also  excludes  commonly  carried  items  such  as  soap,  cleanser, 
household  supplies,  and  paper  products. 

Growth  of  Nonfoods  in  Supers 

Supermarkets  were  not  the  innovators  of  the  sale  of  nonfood  mer- 
chandise among  the  food  stores.  In  the  1920's  some  combination 
markets  handled  nonfoods  before  the  supers  were  in  existence.  H.  C. 
Bohack  in  1929  operated  a  chain  of  512  service  grocery  stores  which 
sold  razor  blades,  drug  items,  and  even  automobile  tires.15  However, 
the  tendency  to  scramble  merchandise  among  the  grocery  stores 
and  combination  markets  in  the  1920's  was  not  common.  In  fact,  the 
1929  retail  census  did  not  have  a  separate  category  for  nonfoods. 

The  early  supermarkets  concentrated  on  merchandising  food  prod- 
ucts. During  World  War  II,  supers  added  nonfoods  in  order  to  sup- 
plement their  reduced  lines  of  food  items.  In  1949  nonfood  items 
continued  to  be  no  novelty  to  supermarkets,  but  health  and  beauty 
aids  were  the  only  major  items  universally  stocked.16  Since  then, 
sales  of  nonfoods  have  increased  steadily  in  supermarkets  through 
broadening  the  product  fine  until  they  have  currently  reached  about 
5  per  cent  of  total  sales.17  The  middle  half  of  the  companies  report- 
is  "Diversified  Lines  Give  Bohack  Chain  $60,000  Yearly  Unit  Sales,"  Sales 
Management,  XXIX,  no.  10,  March  8,  1930,  p.  441. 

16  Curt  Kornblau,  Facts  and  Figures  About  Non-Foods  in  Super  Markets 
(Chicago:  Super  Market  Institute,  1959),  p.  1. 

17  Ibid.,  p.  4. 


214  Supermarketing 

ing  volume  statistics  to  the  Super  Market  Institute  in  1958  achieved 
nonfood  sales  between  3  and  8  per  cent  of  their  total  sales.  While 
there  is  no  clear-cut  pattern  in  the  proportion  of  nonfood  sales  to 
total  sales  according  to  volume  groups,  the  largest  companies  with 
sales  of  more  than  $50  million  average  the  highest  nonfood  sales; 
these  were  reported  at  6.3  per  cent  of  total  volume.  One  of  the  major 
exponents  of  nonfoods  among  the  giants  is  Grand  Union  Company 
which  in  recent  years  has  opened  a  series  of  combined  supermarkets 
and  junior  department  stores  under  the  same  roof. 

The  two  principal  nonfood  lines  generally  carried  by  supermar- 
kets, however,  are  health  and  beauty  aids  and  housewares.  Statistics 
on  the  major  nonfood  lines  carried  by  supermarkets  in  1958  are 
shown  in  Table  11-8  along  with  the  relative  percentage  of  supers 
carrying  these  products.  In  addition,  the  major  source  of  supply  for 
each  of  the  21  classifications  is  listed.  The  method  of  procurement 
differs  widely  for  the  various  kinds  of  products. 

Much  diversity  exists  among  individual  operators  as  to  the  extent 
of  nonfood  lines  carried.  In  order  to  conform  with  supermarket  op- 
erating techniques,  normally  merchandise  must:  18 

1.  Have  rapid  turnover. 

2.  Require  little  space. 

3.  Need  no  technical  selling  or  readily  lend  itself  to  self-serv- 
ice. 

4.  Have  no  high-styling  of  goods. 

5.  Lend  itself  to  simplified  purchasing  and  reordering,  since  the 
supermarket  operator  is  not  normally  an  expert  in  the  wide  line  of 
nonfoods. 

For  the  smaller  concerns,  the  rack  jobber  has  simplified  the  prob- 
lem of  merchandising  items  that  do  not  conform  strictly  to  the  above 
prerequisites.  Larger  companies  are  becoming  strong  advocates  of 
separate  nonfood  departments.  Approximately  27  per  cent  of  all 
supermarkets  have  a  separate  department  with  at  least  one  full-time 
employee  in  charge;  the  majority  of  supers  with  separate  depart- 

18  Milton  Alexander,  "Where  We  Stand  in  Non-Food  Merchandising,"  Pro- 
gressive Grocer,  XXXI,  no.  10,  October,  1952,  p.  197. 


K 


V  Changes  in  Sales  of  Major  Product  Lines 


215 


TABLE  11-8* 

Estimated  Percentages  of  Supermarkets  That  Handle  Nonfood  Lines 
Together  with  Major  Source  of  Supply  for  the  Year  1958. 


%  super 
markets 
handling 


Typical 
number 
of  items 


%  Major  source  of  supply 


Rack 
jobber 


Whole- 
saler 


Manu- 
facturer 


Health  and  beauty 

aids  98 

Housewares  87 

Women's  hosiery  81 

Stationery  74 

Children's  books  73 

Magazines  (general 

line)  71 

Glassware  69 

Baby  needs  68 

Toys  66 

Men's  socks  64 

Pet  supplies  63 

Phonograph  records  62 

Hardware  58 

Garden  supplies  58 

Children's  socks  55 

Underwear  47 
Photographic 

supplies  37 

Greeting  cards  35 
Notions  and 

sundries  33 

Other  soft  goods  33 
Electrical  appliances      11 

*  Curt  Kornblau,  Facts  and  Figures  About  Non-Foods  in  Super  Markets 
( Chicago:  Super  Market  Institute,  1959),  p.  6. 

ments  are  larger  concerns.19  The  titles  given  to  the  nonfood  specialist 
include  nonfood  buyer,  nonfood  supervisor,  and  director  of  nonfood 
division. 

19  Curt  Kornblau,  op.  cit.,  p.  7. 


325 

52 

31 

17 

200 

78 

16 

6 

10 

48 

25 

27 

25 

48 

34 

18 

35 

55 

29 

16 

75 

55 

42 

3 

40 

43 

20 

37 

25 

47 

34 

19 

75 

80 

13 

7 

10 

59 

21 

20 

50 

73 

20 

7 

75 

87 

9 

4 

75 

73 

22 

5 

25 

24 

43 

33 

10 

63 

19 

18 

12 

60 

20 

20 

10 

42 

50 

8 

150 

56 

18 

26 

50 

60 

30 

10 

35 

61 

19 

20 

20 

31 

54 

15 

216  Supermarketing 

Impact  of  Nonfoods  in  Supers 

Generally  the  supermarket  exploited  nonfoods  ahead  of  small 
grocery  stores  and  combination  markets.  Therefore  the  sales  penetra- 
tipnjby _the  supermart  in  nonfoods  has  been  at  the  expense  of  other 
fejLJQQd  store  retailers.  The  success  of  the  supermarket  in  these 
areas  resulted  in  the  grocery  store  and  small  combination  market 
imitating  the  supers  in  an  effort  to  increase  sales  and  profits.  Data 
in  Table  11-9  indicate  the  extent  to  which  all  grocery  stores  and 

TABLE  11-9  * 

Sales  of  Nonfood  Items  in  Grocery  Stores  and 

Combination  Markets,  in  Dollars  and  as  a  Percentage 

of  Total  Consumption  for  the  Year  1958. 


%  total 

Sales 

domestic 

Product 

(in  millions) 

consumption  f 

Tobacco  products 

$1,774 

29 

Packaged  medications 

220 

23 

Health  aids 

80 

26 

Oral  hygiene  products 

182 

48 

Hair  products 

171 

40 

Shaving  products 

84 

38 

Cosmetics  and  lotions 

52 

16 

Other  toiletries 

34 

26 

Greeting  cards 

10 

3 

Magazines  and  newspapers 

60 

3 

Toys 

21 

1 

Phonograph  records 

50 

12 

Housewares 

265 

— 

*  What  the  Public  Spends  for  Grocery  Store  Products  (New  York:  Topics 
Publishing  Co.,  1959). 

f  Total  domestic  consumption  includes  all  consumption,  even  at  the  farm 
level,  or  by  institutions,  restaurants,  or  government,  at  the  value  of  retail  store 
prices. 

combination  markets,  including  supers,  have  invaded  the  nonfood 
field.  Tobacco  products  and  certain  health  and  beauty  aids  almost 
universally  are  distributed  through  grocery  and  combination  stores. 


Changes  in  Sales  of  Major  Product  Lines  217 

However,  the  activities  of  the  small  merchant  are  dwarfed  by  the 
si^permarket  with  its  large  and  diversified  assortment  of  nonfoods. 

Specific  merchandising  practices  of  supermarkets  in  the  nonfood 
area  and  the  extent  of  penetration  in  some  lines  can  be  assessed.  The 
Toilet  Goods  Association  reported  in  1957  that  supermarkets  had 
captured  20.3  per  cent  of  the  retail  business  in  toilet  goods.20  Drug- 
stores still  were  the  main  outlet,  with  28.6  per  cent  of  the  sales;  but 
the  supermarket  has  been  making  inroads  on  this  lead.  Furthermore, 
these  figures  are  distorted  since  they  include  high-priced  perfume 
normally  not  handled  in  supers.  Margins  for  toilet  goods  in  supers 
range  from  25  to  40  per  cent,  with  an  average  of  about  30  per  cent, 
and  turnover  ranges  from  12  to  25  times  per  year.  Total  1957  sales  of 
toilet  goods  in  supers  were  $600  million. 

Dollarwise,  apparel  has  taken  over  the  No.  3  position  in  non-food 
supermarket  sales;  the  most  important  item  is  nylon  hosiery.21  The 
markup  for  apparel  averages  from  30  per  cent  to  35  per  cent.  The 
bulk  of  the  merchandise  is  sold  on  impulse  and  is  priced  at  $1.00  or 
less.  Purchases  are  made  largely  from  the  manufacturer,  and  many 
of  the  items  are  branded  and  presold  through  advertising.  In  1957 
supermarkets  sold  $240  million  in  women's  hosiery,  or  33  per  cent 
of  total  industry  sales  of  $720  million.22  More  than  85  per  cent  of 
the  larger  supers  carry  nosiery,  which  sells  on  impulse;  hosiery 
is  conveniently  displayed,  attractively  packaged,  requires  a  small 
amount  of  floor  space,  and  turns  over  rapidly  (up  to  25  times  per 
year ) .  With  regard  to  complete  lines  of  apparel,  few  stores  have 
attained  the  position  of  Grand  Union,  which  has  at  least  three  spe- 
cialized apparel  buyers  and  in  some  stores  has  up  to  14,000  sq  ft  of 
space  devoted  to  nonfoods,  mostly  clothing.  The  new  Grand  Union 
stores  for  the  most  part  are  junior  department  stores  along  with  the 
food  departments. 

The  1957  retail  sale  of  cigarettes  was  about  $3  billion;  of  this 

20  Supermarket  News,  May  5,  1958,  p.  54. 

21  Ibid.,  March  10,  1958,  p.  58. 

22  Ibid.,  March  31,  1958,  p.  36. 


218  Supermarketing 

total,  60  per  cent,  or  $1.8  billion,  was  sold  in  supers.23  Cigarettes  are 
ideal  for  supermarkets  since  they  have  a  turnover  of  as  high  as  52 
times  per  year,  require  small  display  space,  and  need  little  advertis- 
ing or  promotion  since  they  are  presold  by  the  manufacturer  and 
sell  in  volume  by  the  carton.  Disadvantages  of  cigarettes  are  that 
pilferage  is  high,  markup  is  low,  and  recently  so  many  lines  are 
needed  that  increased  display  space  is  required.  However,  super- 
market operators  have  found  cigarettes  an  ideal  product  to  attract 
both  men  and  women  shoppers. 

Housewares,  including  pots,  kitchen  gadgets,  and  brooms  and 
mops,  in  1957  had  supermarket  sales  of  $385  million,  whereas  in 
1951  they  amounted  to  only  $16.5  million.24  jflouseware  retailing  is 
considered  specialized  merchandising,  and  many  operators  are  will- 
ing to  use  service  jobbers  and  pay  slightly  higher  prices  to  get  serv- 
ice and  consigned  merchandise. 

Hardware  items  carried  by  supers  range  from  125  to  950  items.25 
These  mainly  include  convenience  goods  purchased  primarily  by 
women,  such  as  batteries,  light  bulbs,  extension  cords,  paint,  brushes, 
and  small  tools.  These  items,  which  carry  from  25  to  40  per  cent 
margin,  have  been  growing  in  importance  each  year  since  1950; 
however,  they  are  still  a  relatively  small  portion  of  industry  sales. 

Phonograph  records  sold  by  supers  in  1957  totaled  $40  million  or 
10  per  cent  of  the  total  industry  sales  of  $400  million 26  Records 
are  handled  primarily  through  rack  jobbers.  On  the  average,  only  5 
sq  ft  of  space  is  needed  for  display,  the  records  carry  a  35  per  cent 
margin,  and  turnover  of  as  high  as  30  times  per  year  has  been  ex- 
perienced. Pilferage  has  been  low.  The  main  difficulty  is  that  a  re- 
cording may  be  a  hit  one  day  and  not  sell  the  next.  That  is  why  rack 
jobbers  are  the  major  supplier  in  this  field. 

Toy  sales  in  1957  were  $1.25  billion  nationally,  of  which  super- 
markets transacted  2  per  cent  or  $25  million.27  Supermarkets  were 

23  Ibid.,  April  14,  1958,  p.  52. 

24  Ibid.,  April  21,  1958,  p.  34. 

25  Ibid.,  May  26,  1958,  p.  80. 

26  Ibid.,  June  2,  1958,  p.  50. 

27  Ibid.,  July  14,  1958,  p.  42. 


Changes  in  Sales  of  Major  Product  Lines  219 

well  behind  variety  stores  and  department  stores,  which  transacted 
about  24  and  23  per  cent,  respectively,  of  toy  sales.  Supers  have  on 
the  average  devoted  less  than  5  sq  ft  of  display  space  to  toys.  This 
display  space  is  expanded  slightly  at  Christmas  time  when  half  of 
the  volume  is  attained.  The  best  sellers  are  plastic  items  selling  un- 
der $1.00,  with  the  most  important  price  line  being  39  cents.  On  the 
average  a  super  carries  approximately  75  items  procured  primarily 
through  rack  jobbers.  Whereas  the  sale  of  toys  has  experienced 
steady  growth,  supers  have  not  merchandised  toys  effectively;  and 
this  line  remains  a  small  item  in  total  supermarket  sales  and  total 
industry  sales  of  toys. 

Cameras  and  sports  equipment  are  stocked  by  relatively  few  su- 
permarkets; only  the  biggest  department  store  type  of  super  offers 
a  selection  in  these  categories.28  The  reasons  for  this  include  low 
turnover,  high  price,  seasonal  sales,  and  need  for  many  items  to 
make  a  complete  line.  Only  two  photographic  items  provide  an  ex- 
ception; these  are  film  and  flash  bulbs,  which  enjoy  from  33  to  40 
I  per  cent  margins,  require  little  display  space  at  the  check-out  coun- 
ter, and  arp  ideal  for  impulse  purchases. 
Most  supers  have  stayed  clear  of  appliances.29  Those  that  have 
succeeded  in  this  area  have  done  so  with  small  items  such  as  radios, 
toasters,  and  blenders,  which  sell  for  under  $50.  The  reasons  for  not 
handling  this  type  of  merchandise  are  ( 1 )  too  much  display  space 
is  needed,  (2)  a  large  number  of  items  must  be  carried,  (3)  the 
appliances  are  bulky  to  display,  (4)  discount  houses  offer  strong 
competition  and  (5)  prices  are  too  high  to  qualify  as  an  impulse 
item.  For  the  same  reasons,  few  supers  have  been  successful  with 
power  lawn  mowers,  auto  accessories,  and  large  garden  items. 


SUMMARY 

The  supermarket  has  become  the  dominant  factor  in  every  division  of 
food  store  retailing.  The  super  reigns  supreme  over  limited-line  stores  in 

28  Ibid.,  July  21,  1958,  p.  30. 

29  Ibid.,  July  28,  1958,  p.  37. 


220  Supermarketing 

such  areas  as  fresh  fruits  and  vegetables,  bakery  products,  fresh  meats, 
sea  food,  and  grocery  items.  Supermarkets  currently  gross  more  than  50 
per  cent  of  the  retail  food  store  sales  of  meat,  produce,  and  grocery  items. 
Even  the  delicatessens  have  felt  the  impact  of  the  supermarket,  which 
has  opened  delicatessen  departments  in  neighborhoods  where  products 
of  that  nature  are  sold  readily.  Supers  are  the  major  retail  channel  for 
such  diverse  items  as  cigarettes,  ice  cream,  canned  fruit,  bread,  soap,  and 
bananas. 

In  the  nonfoods  area,  the  supermarket,  with  its  scrambled  merchandis- 
ing techniques,  has  become  a  nightmare  to  other  retailers  such  as  drug- 
stores, variety  shops,  and  department  stores.  The  supermarket  industry 
yearly  continues  to  invade  new  areas  in  an  effort  to  exploit  customer  traffic 
to  the  fullest.  Products  that  are  attractively  packaged,  require  small  dis- 
play space,  are  relatively  inexpensive,  are  purchased  on  impulse,  carry 
good  margins,  experience  a  high  turnover,  and  are  subject  to  frequent 
purchase  have  become  "must  items"  for  the  supermarket.  The  trend  to- 
ward wider  lines  of  nonfoods  continues  unabated,  especially  by  the  larger 
supers.  Approximately  27  per  cent  of  the  supers  now  have  separate  non- 
foods  departments  under  the  management  of  a  nonfoods  specialist  who 
merchandises  such  items  as  apparel,  toys,  books,  household  supplies, 
phonograph  records,  and  health  and  beauty  aids.  Currently  about  5  per 
cent  of  a  supermarket's  sales  are  in  nonfood  lines;  but  the  expansion  in 
nonfoods  is  expected  to  grow  over  the  years  as  the  stores  become  larger. 


12 


MANAGERIAL  POLICY 
AND  PERSPECTIVE 


INTRODUCTION 

The  preceding  eleven  chapters  traced  the  development  of  the 
supermarket  industry,  examined  external  factors  and  internal  poli- 
cies that  influenced  its  growth,  and  measured  the  impact  of  the 
supermarket  movement  on  the  food  store  industry.  This  final  chapter 
sets  forth  industry  trends  and  conclusions  of  this  study  written  from 
a  managerial  viewpoint.  The  major  topics  to  be  considered  are  the 
dynamic  nature  of  the  industry,  the  position  of  the  supermarket  in 
its  growth  cycle,  the  trend  toward  "bigness,"  organizational  con- 
cepts, the  science  of  decision  making  in  management,  the  use  of 
research,  the  relationship  of  profit  to  volume,  fixed  expense  and  pro- 
motion, merchandising  policies,  store  operations,  financing  growth, 
deterrents  to  progress,  and  the  illusiveness  of  good  will.  The  purpose 
of  these  discussions  is  to  facilitate  the  making  of  present  and  future 
policy  and  decisions. 

DYNAMIC  NATURE  OF  THE  SUPERMARKET 

Management  must  realize  that  change  is  the  cornerstone  on  which 
a  successful  supermarket  operation  is  based.  If  management  stops 
its  quest  for  a  better  way  of  merchandising  food  and  related  prod- 
ucts in  line  with  the  desires  of  the  consumer,  then  growth  will  cease 
and  the  supermarket  will  become  just  another  mature  retailer. 

The  record  of  this  industry  is  one  of  astute  and  capable  manage- 
ment. No  other  segment  of  retailing  has  demonstrated  greater  dyna- 
mism in  the  past  30  years.  The  super,  a  marketing  innovation,  came 

221 


222  Supermarketing 

into  national  prominence  because  it  pursued  an  unusual  practice 
with  regard  to  the  sale  of  food  store  products.  It  featured  large  vol- 
ume, narrow  margins,  and  reduced  expenses  through  self-service 
and  a  variety  of  other  economies.  In  a  period  of  depression  it  estab- 
lished itself  as  a  low-cost  marketer  of  food  as  compared  with  exist- 
ing food  store  retailers,  and  it  passed  on  some  of  its  savings  in 
lower  prices  to  the  consumer. 

Once  the  movement  started  amidst  much  controversial  publicity, 
it  continued  its  dynamic  policy  of  constant  change.  With  the  rise 
in  national  income,  supers  switched  from  the  "cheapy"  form  to  a 
better-equipped,  better-located  and  better-housed  type  of  market. 
During  World  War  II  when  food  rationing  was  in  effect,  the  super- 
markets added  nonfoods. 

Supers  continued  to  capture  more  of  the  business  in  older,  densely 
populated  areas  where  the  price  appeal  was  important.  But  in  the 
postwar  period,  they  followed  the  trend  to  the  suburbs  and  stressed 
locations  in  these  new  areas  where  purchasing  power  was  higher 
and  opportunity  for  growth  was  greater.  These  new  units  featured 
such  customer  services  as  parking  facilities,  air  conditioning,  music, 
and  rest  rooms. 

When  the  trend  toward  one-stop  shopping  developed,  supers  ex- 
ploited this  preference  to  the  fullest  with  their  wide  lines  of  mer- 
chandise. As  new  products  were  introduced,  supers  in  general  had 
more  facilities  to  handle  them  than  the  small  grocer  or  combination 
market.  The  postwar  trend  of  supermarkets  was  to  build  larger  stores 
to  handle  greater  varieties  of  stock. 

These  changes  increased  both  gross  margins  and  expenses  of  the 
supermarket.  Margins  were  forced  upward  because  there  was  a 
tendency  to  expand  into  wide  lines,  including  nonfoods,  which 
earned  a  higher  markup  than  grocery  items.  Gross  margins  also  in- 
creased as  a  result  of  higher  expenses  because  of  the  trend  to  "trade 
up"  the  store  and  to  increase  customer  services.  In  addition  to  the 
rise  in  expenses  attributed  to  improving  customer  shopping  facili- 
ties, there  was  an  increase  in  the  percentage  of  sales  expended  for 
salaries  and  wages. 


Managerial  Policy  and  Perspective  223 

The  supermarket  management  attempted  to  combat  this  rise  in 
wages  with  an  increase  in  self-service.  The  wider  use  of  self-service 
was  in  line  with  the  wishes  of  the  customers;  and  the  trend  towards 
complete  self-service  continues  to  grow. 

Chain  brands,  manufacturing  and  food  processing  activities,  and 
prepackaging  are  more  recent  areas  of  investigation  by  manage- 
ment. And  the  future  offers  promise  for  additional  change  for  more 
effective  and  efficient  marketing  that  ranges  from  electronic  check- 
out stands  to  spirally  designed  stores. 

More  than  any  other  type  of  food  store,  the  super  has  adapted 
its  operations  and  policies  to  meet  changes  in  consumer  buying 
habits.  Management  has  been  aware  of  economic  trends  and  has 
shaped  operations  accordingly.  The  small  stores  frequently  had 
neither  the  finances  nor  the  business  acumen  to  profit  by  the  chang- 
ing times.  The  ability  of  management  generally  to  experiment,  to 
adapt,  and  to  take  advantage  of  the  circumstances  must  be  con- 
tinued if  this  industry  is  to  grow  in  the  future.  Management  of  a 
specific  supermart  operation  that  lacks  vision  in  setting  forth  its  ob- 
jectives and  also  the  means  and  the  ability  to  attain  these  objectives 
will  cause  that  concern  to  become  just  another  mature  retailer. 

POSITION  IN  ITS  GROWTH  CYCLE 

The  record  of  the  supermarket  industry  is  a  story  of  growth. 
Normally  an  industry  passes  through  four  phases  in  its  pattern  of 
development  or  growth  cycle.  These  stages  include  (1)  the  period 
of  experimentation,  (2)  the  period  of  rapid  growth  into  the  social 
fabric,  (3)  the  period  when  growth  continues  but  at  a  diminishing 
rate,  and  ( 4 )  the  period  of  maturity  or  stability. 

The  supermarket,  an  innovation,  invaded  a  mature  or  relatively 
stable  business— the  sale  of  food  for  home  consumption— which  is 
more  or  less  geared  to  population  growth.  And  in  a  short  span  of 
30  years  it  revolutionized  the  food  business  and  related  industries. 
Currently  the  supermarket  transacts  about  65  per  cent  of  grocery 
and  combination  market  sales  and  57  per  cent  of  all  food  stores  sales. 
While  the  industry  currently  continues  to  grow  and  command  a 


224  Supermarketing 

larger  share  of  the  market,  the  rate  of  growth— not  the  absolute 
amount— tends  to  decrease.  This  would  place  the  supermarket  in  the 
third  stage  of  its  asymptotic  growth,  but  at  no  time  to  date  has  this 
industry  evidenced  maturity. 

Underlying  reasons  for  past  and  future  growth  are  found  in  ( 1 ) 
operating  practices  and  techniques,  ( 2 )  the  favorable  economic  and 
social  climate  in  which  to  operate,  ( 3 )  the  basic  philosophy  of  man- 
agement, and  (4)  the  composition  of  the  industry.  The  operating 
techniques  developed  by  management  stand  as  a  monument  to  re- 
tailing. The  external  factors  of  new  developments  from  research, 
suburbia,  and  prosperity  show  no  evidence  of  basic  change  in  the 
immediate  future.  The  original  philosophy  of  management  to  seek 
a  better  way  to  market  food  and  related  products  has  remained  in 
effect  throughout.  Like  the  New  York  Yankess  in  baseball,  manage- 
ment has  never  stopped  winning  and  will  continue  under  the  spirit 
of  "success  breeds  success."  Many  grass-root  operators— pioneers  and 
innovators  who  were  imbued  with  the  desire  to  create  and  who 
fought  their  way  to  the  top— are  still  with  the  industry.  Many  of 
these  have  developed  large,  even  gigantic,  operations.  Others  who 
have  since  joined  the  movement,  including  many  chains,  learned 
there  is  no  such  term  as  "status  quo"  in  this  field.  Those  who  could 
not  stand  the  pace  any  longer  have  left  the  industry.  Inasmuch  as 
there  are  advantages  to  large-scale  operation  in  this  field,  it  is  no 
problem  to  sell  an  operation  profitably  to  a  larger  competitor.  This 
trend  of  "acquire  or  expire"  will  continue. 

Chains  have  now  come  to  dominate  the  supermarket  industry;  and 
yet  no  one  concern  ranks  supreme.  Competition  prevails  every- 
where. The  major  battle  is  no  longer  a  struggle  among  segments  of 
the  food  distribution  area;  rather,  it  is  an  intra-industry  battle  among 
supermarkets.  The  small  markets  and  limited-line  stores  are  caught 
in  the  cross  fire  of  supermarket  operators  who  vie  among  themselves 
for  new  products,  locations,  and  ideas  to  secure  some  marketing  ad- 
vantage. Intensive  competition  has  kept  and  will  continue  to  keep 
the  industry  alert.  The  growth  in  the  foreseeable  future  will  con- 
tinue independently  of  the  increase  in  population  and  in  personal 


Managerial  Policy  and  Perspective  225 

disposable  income.  The  industry  will  continue  in  phase  three  of  the 
growth  cycle  in  the  era  of  the  "sizzling  sixties/' 

While  the  industry  as  a  whole  is  in  phase  three  of  the  growth 
cycle,  all  members  are  not  necessarily  in  this  stage.  All  concerns  are 
not  experiencing  the  same  rate  of  growth;  some  individual  com- 
panies evidence  maturity.  Managements  of  individual  concerns 
should  assess  their  past  rate  of  progress,  set  forth  objectives,  and 
plan  for  the  future  to  attain  these  goals  whatever  they  may  be.  In 
recent  years,  chains  with  100  to  1,000  units  as  a  class  experienced 
the  greatest  absolute  and  relative  growth.  Concerns  with  one  or  a 
limited  number  of  stores  will  continue  to  experience  a  more  fluctu- 
ating pattern  of  development  since  the  opening  of  one  new  super 
influences  operations  significantly.  But  the  small  members  of  the  in- 
dustry are  not  growing  at  the  accelerated  rate  of  the  medium-sized 
chains  and  are  becoming  the  more  stable  members  of  the  industry. 
This  also  is  the  case  of  the  largest  industry  members  who  must  watch 
expansion  closely,  not  for  lack  of  resources,  markets,  facilities,  and 
ability  but  for  fear  of  governmental  interference. 

SUPERMARKET  TREND  TOWARD  "BIGNESS" 

The  supermarket  industry  today  is  basically  one  of  big  business. 
Management  must  realize  that  forces  within  the  industry  no  longer 
favor  "large"  but  "larger"  scale  operation.  This  trend  toward  "big- 
ness" reflects  the  investment  in  each  store  and  the  size  of  the  con- 
cern that  owns  and  operates  the  markets. 

The  "cheapy"  supermarket  investment  was  at  a  minimum.  These 
stores  rented  abandoned  buildings  and  used  flimsy  fixtures.  Since 
then  the  investment  in  a  supermarket  has  spiraled,  particularly  in 
the  postwar  period  because  of  the  trends  toward  (1)  larger  stores, 
(2)  larger  inventories,  (3)  more  and  better  equipment,  and  (4) 
holdings  in  real  estate.  Larger  stores  are  needed  to  handle  the  in- 
creased lines  of  merchandise  and  enable  better  display.  Larger  in- 
ventories reflect  the  growing  lines  handled  including  nonfoods  and 
the  host  of  convenience  food  products.  Additional  equipment  is  re- 
quired to  handle  frozen  foods,  self-service  meats,  and  food  prepara- 


226  Supermarketing 

tion  and  processing.  Many  pioneer  locations  require  the  erection  of 
buildings  and  the  development  of  parking  lots.  Since  rented  facili- 
ties are  not  always  available,  supers  erect  many  of  their  own  build- 
ings or  arrange  for  financing  them  in  this  postwar  era  of  expansion. 
Today  a  modern  supermarket  requires  a  substantial  investment  at 
one  location.  The  degree  of  risk  inherent  in  pioneering  a  new  loca- 
tion with  a  substantial  investment  limits  entry  into  the  industry  to 
the  large  operator.  And  the  long-range  trend  continues  toward  larger 
and  better  equipped  markets  with  wider  lines  of  merchandise. 

Whereas  the  supermarket  was  an  innovation  of  independent  mer- 
chants, the  industry  received  its  main  impetus  when  the  chains 
joined  the  movement.  By  1958  the  local,  regional,  and  national 
chains  dominated  the  supermarket  field  with  67  per  cent  of  the  stores 
and  69  per  cent  of  the  sales.  And  these  chains  continue  to  capture 
more  of  the  volume  and  to  operate  the  larger  markets.  These  trends 
will  continue  in  the  near  future. 

Management  must  realize  that  the  industry  has  certain  definite 
advantages  for  the  big  operator.  In  financing,  supers  have  used  re- 
tained profits  as  an  important  source  of  funds  for  expansion;  yet, 
outside  capital  to  a  large  degree  also  has  been  needed.  The  larger 
concerns  have  been  able  to  acquire  capital  (sell  stock  or  deben- 
tures )  on  a  more  advantageous  arrangement  since  the  degree  of  risk 
inherent  in  pioneering  a  new  location  or  withstanding  the  inroads 
of  an  encroacher  in  a  given  market  can  be  minimized  by  geographi- 
cal diversification  of  the  outlets.  "Bigness"  also  has  certain  opera- 
tional advantages  in  such  areas  as  buying,  warehousing,  advertising, 
and  promotion.  The  low,  fixed  expense  of  a  supermarket  accentuates 
territorial  encroachment  by  the  diversified  large  enterprise.  Further- 
more, horizontal  and  vertical  integration  practices  benefit  the  larger 
concerns.  When  chains  acquire  a  sufficient  number  of  outlets  as  a 
result  of  horizontal  expansion,  they  find  it  advantageous  to  integrate 
vertically  by  assuming  some  of  the  wholesale  activities.  Horizontal 
integration  as  a  result  of  acquiring  existing  markets  of  smaller  com- 
petitors furnishes  the  needed  outlets  rapidly  and  eliminates  the  risk 
and  the  increased  costs  of  an  untried  location.  After  a  chain  attains 


Managerial  Policy  and  Perspective  227 

a  sufficient  number  of  outlets,  additional  vertical  integration  is  feas- 
ible by  entry  into  manufacturing  and  food-processing  activities.  The 
chains  are  able  to  incorporate  their  own  branded  products  in  their 
marketing  strategy  in  this  highly  competitive  field  where  price  and 
value  are  vital;  and  the  manufactured  products  also  can  become  an 
important  source  of  profits  to  firms  of  the  proper  size  in  terms  of  re- 
tail volume. 

The  wave  of  horizontal  integration  that  has  taken  place  in  recent 
years  primarily  through  acquisitions  is  creating  a  growing  class  of 
medium-sized  chains  that  wield  a  potent  force  in  buying  and  selling 
operations.  Furthermore,  these  medium-sized  chains  have  branched 
out  into  manufacturing  and  food-processing  activities  that  range 
from  coffee  to  store  fixtures.  Manufacturers  of  food  products,  even 
the  national  advertisers  with  widely  known  brands,  are  finding  grow- 
ing competition  with  chain  brands  arising  from  vertical  integration; 
and  this  trend  is  expected  to  continue. 

The  largest  member  of  the  industry,  the  Great  Atlantic  and  Pacific 
Tea  Company,  for  years  was  singled  out  by  the  federal  government 
for  antitrust  action  as  a  result  of  its  broad  line  of  manufactured 
products  and  its  4,500  plus  outlets.  Two  other  major  concerns,  the 
Kroger  Company  and  the  National  Tea  Company,  recently  have 
been  charged  with  violation  of  the  antimerger  law  resulting  from 
extensive  acquisitions.  In  the  Kroger  compaint,  the  Federal  Trade 
Commission  charged  that  20  per  cent  of  the  supermarket  concerns 
now  transact  72  per  cent  of  the  sales.  While  these  actions  may  deter 
the  largest  members  of  the  industry  from  aggressive  expansion,  the 
smaller  members  (but  large  in  their  own  right)  continue  on  their 
merry  pace  of  integration,  both  horizontal  and  vertical.  The  extent 
to  which  this  industry  becomes  one  of  large-size  chains  depends 
solely  on  the  policing  action  of  the  federal  government. 

Future  possibilities  for  this  industry  that  make  for  "bigness"  are 
mergers  of  supermarkets  with  appliance,  variety,  drug,  and  depart- 
ment stores.  This  would  enable  expansion  through  mergers  without 
running  afoul  of  the  antimonopoly  provisions  of  the  Clayton  Act. 
Possibly,  supermarket  chains  could  be  merged  with  discount  houses. 


Z28  Supermarketing 

Or  the  pattern  established  by  the  Grand  Union  Company  in  devel- 
oping its  Grand- Way  stores  may  offer  expansion  in  the  junior  de- 
partment store  area.  All  these  developments  point  toward  "bigness." 
Individual  company  management  must  think  in  terms  of  "big- 
ness." This  must  be  inherent  in  its  policy  and  perspective.  Manage- 
ment must  cope  with  these  trends  toward  horizontal  and  vertical 
integration  and  all  the  ramifications  of  reorganization.  It  can  join 
the  movement  in  its  own  manner  or  sell  out  at  the  best  possible 
price.  It  is  difficult  to  swim  upstream  or  fight  against  statistical  odds 
favoring  the  opposition.  Forces  are  marshaled  in  favor  of  "bigness," 
both  in  size  of  stores  and  size  of  concerns. 

ORGANIZATION  CONCEPTS 

Management  has  come  more  and  more  to  realize  that  "bigness" 
leads  to  complications  in  the  operation  of  a  supermarket.  This 
fact  of  life  requires  that  an  organization— a  team— be  developed  to 
achieve  with  the  minimum  of  effort  the  goals  of  the  enterprise, 
which,  whatever  they  may  be,  are  set  forth  by  top  management. 
Everyone  in  authority  must  know,  endorse,  and  be  imbued  with 
these  objectives.  Otherwise  friction,  confusion,  and  disagreement 
can  render  ineffective  the  organization  and  operation  of  the  busi- 
ness. 

Top  management  of  a  large-scale  operation  must  set  forth  the 
major  functions  of  the  business  required  to  achieve  the  desired  goals. 
For  example,  the  selling  operation  is  a  major  function  in  a  super- 
market; the  number  of  individuals  in  the  chain  of  command  depends 
upon  the  size  and  scope  of  the  concern.  The  chain  of  command  for 
a  large  supermarket  company  runs  from  the  president  to  the  vice- 
president  in  charge  of  operations.  Then  it  passes  to  the  district  man- 
agers and  finally  to  the  store  managers  from  their  respective  district 
supervisors.  In  turn,  the  department  managers  in  a  super  are  re- 
sponsible to  the  store  manager,  and  the  crews  report  to  the  depart- 
ment managers.  Throughout,  this  organization  must  center  respon- 
sibility with  certain  individuals;  and  it  is  imperative  to  give  these 


Managerial  Policy  and  Perspective  229 

individuals  the  specific  authority  that  goes  with  their  assigned  re- 
sponsibility and  to  make  compensation  accordingly.  A  staff  of  ex- 
perts is  required  to  offer  technical  information  and  assistance  to  the 
managers  and  other  executives  in  the  line  operation.  These  staff 
members— experts  in  such  areas  as  research  and  development,  mer- 
chandising, personnel,  advertising,  promotion,  and  home  economics 
—facilitate  the  work  of  the  line  executives.  Finally  a  committee  of 
major  executives  from  both  staff  and  line  departments  (or  an  out- 
side management-consulting  firm )  should  evaluate  the  organization 
to  assure  proper  operation.  Every  supermarket  organization  should 
be  subject  to  frequent  review. 

There  has  been  a  trend  in  the  past  decade  in  the  supermarket  in- 
dustry toward  this  type  of  line-and-staff  organization  and  away  from 
the  functional  kind  in  which,  for  example,  the  store  produce  depart- 
ment managers  in  a  division  are  responsible  to  a  district  or  head- 
quarters specialized  produce  manager.  This  suggested  basic  pattern 
of  line-and-staff  organization  has  been  used  successfully  by  large 
organizations.  It  centers  the  responsibility  in  the  store,  and  it  en- 
ables the  market  to  operate  under  a  line  authority  as  a  team  effort. 
The  supermarket  is  a  big  business,  and  management  must  have  an 
organization  geared  for  big  business.  The  organization  chart  should 
be  made  available  to  all  personnel  so  that  enterprising  employees 
can  see  avenues  for  advancement. 

SCIENCE  OF  DECISION  MAKING  IN  MANAGEMENT 
Management  problems  of  any  business  become  more  complex  as 
the  enterprise  becomes  larger  and  more  diversified.  Supermarket 
management  faces  added  difficulties  in  decision  making  which  re- 
sult from  the  wide  geographical  dispersement  of  its  operating  units: 
that  is,  stores,  warehouses,  processing  plants,  and  factories.  Further- 
more, the  logistics  problems  of  handling  a  large  physical  volume  of 
bulky,  diversified  merchandise  which  is  sold  on  a  narrow  margin  of 
profit  become  exceedingly  complex.  This  is  no  industry  of  apron- 
stringed  men  with  strong  backs.  Supermarket  concerns  require  ca- 


230  Supermarketing 

pable  management  personnel  who  are  able  to  make  proper  decisions 
at  all  levels  of  the  organization.  Decentralized  management  is  essen- 
tial. 

Decisions  basically  fall  into  three  categories,  namely:  (1)  policy, 
(2)  operating,  and  (3)  crisis.1  Policy  decisions  as  to  the  broad  ob- 
jectives of  the  concern,  such  as  extent  of  integration  or  general 
product  line,  are  set  forth  by  the  board  of  directors.  Lesser  policy 
decisions  involving  personnel  or  purchasing  are  made  by  the  key 
executives  in  the  concern.  Operating  decisions  relating  to  the  daily 
activities  of  the  company,  such  as  the  purchase  of  a  particular  prod- 
uct or  the  pricing  of  an  item,  should  be  made  by  store  managers  and 
department  heads  to  allow  for  maximum  flexibility  in  taking  ad- 
vantage of  local  conditions.  Crisis  decisions  are  those  made  on  the 
spur  of  the  moment  to  solve  an  immediate  problem  without  regard 
to  existing  policy  or  due  to  the  lack  of  policy.  These  can  be  made 
at  any  level  of  management,  but  normally  they  appear  at  the  opera- 
tional level.  Too  often  the  danger  of  crisis  decisions  made  to  solve 
particular  problems  lies  in  the  fact  that  they  become  company  pol- 
icy. 

Local  management  is  confronted  with  the  problem  of  making 
more  and  better  operating  decisions.  These  decisions  should  be 
predicated  on  a  rational,  systematic  basis  rather  than  on  intuition 
or  experience-based  judgment  alone.  The  process  of  decision  mak- 
ing is  not  a  substitute  for  judgment  but  is  a  systematic  approach  to 
the  solution  of  problems.  For  the  purposes  of  analysis,  the  elements 
of  decision  making  can  be  reduced  to: 

1.  Finding  the  problem 

2.  Analyzing  the  problem 

3.  Developing  alternative  solutions 

4.  Selecting  the  best  solution 

5.  Making  the  decision  effective 

For  example,  consider  two  supermarkets  in  the  same  chain  in  ad- 
jacent trading  areas.  One  store  purchases  perishables  from  local 

1  These  categories  were  suggested  by  Dr.  Robert  Carney,  Associate  Professor 
of  Management,  Georgia  Institute  of  Technology. 


Managerial  Policy  and  Perspective  231 

farmers  and  the  other  from  the  central  warehouse.  Friction  exists 
between  the  two  store  managers,  and  there  is  resentment  toward  the 
division  manager  on  the  part  of  the  one  store  manager  who  follows 
orders  and  purchases  from  the  central  warehouse. 

The  problem  can  be  defined  as  ( 1 )  misinterpretation  of  policy  by 
either  or  both  local  managers,  (2)  obedience  to  formal  policy  by 
one  manager  and  disregard  for  it  by  the  other,  or  (3)  failure  to  in- 
clude all  stores  in  the  policy.  Next,  in  order  to  develop  a  solution, 
an  analysis  must  be  made  as  to  what  caused  these  two  different 
practices  to  exist  in  the  first  place.  Management  must  know  where 
to  find  sufficient  information;  it  must  have  the  ability  to  draw  to- 
gether data  and  set  forth  the  necessary  assumptions.  Otherwise  a 
sufficient  number  of  alternatives  will  not  be  set  forth,  and  the  analy- 
sis will  be  made  in  too  narrow  a  framework.  The  analysis  must 
assess  the  information  accurately  by  assigning  the  correct  weights 
to  the  data.  For  example,  if  vine-ripened  produce  in  season  is  de- 
manded by  the  vast  majority  of  customers  of  one  store  and  this  fea- 
ture is  known  to  differentiate  the  particular  market  and  attract 
customers,  then  this  factor  that  favors  the  practice  of  buying  lo- 
cally may  outweigh  many  minor  points  favoring  central  purchas- 
ing. 

As  one  solution  to  this  dilemma  in  produce  buying,  management 
could  inform  all  local  managers  to  follow  policy  as  set  forth.  A 
second  choice  would  be  to  have  formal  policy  followed  except  in 
special  circumstances.  Or,  if  the  policy  regarding  outside  purchas- 
ing is  too  rigid  and  needs  to  be  made  flexible,  a  third  solution  would 
be  to  permit  decision  making  at  the  operating  level. 

Circumstances  in  each  case  would  determine  what  the  specific 
solution  to  the  problem  should  be.  It  is  essential  in  good  decision 
making  that  the  solution  not  be  made  in  a  vacuum  without  regard 
for  the  human  element.  The  goals  of  the  individuals  who  will  be 
affected  by  the  choices  must  be  considered.  It  is  also  necessary  to 
anticipate  the  reaction  of  those  affected  by  the  solution  selected  be- 
cause, in  the  final  analysis,  decisions  will  be  ineffectual  unless 
accepted  by  those  who  are  to  carry  them  out.  Other  factors  to 


232  Supermarketing 

be  considered  are  the  cost,  time,  personnel,  skill,  equipment,  and 
resources  with  which  to  do  the  job. 

The  above  problem  could  have  evolved  from  lack  of  company 
over-all  policy  on  outside  buying,  or  it  could  have  resulted  from  a 
crisis  decision  made  by  a  division  manager  or  store  manager.  This 
crisis  decision  may  have  become  a  precedent  for  the  one  store  to 
follow.  Management  must  organize  and  operate  the  concern  so  as  to 
require  the  fewest  number  of  crises  decisions.  Yet,  policy  should 
not  be  so  rigid  that  store  managers  are  prevented  from  making  sound 
decisions  affecting  the  operation  of  their  respective  stores. 

USE  OF  RESEARCH 

The  small  food  store  operator  knows  his  customers;  he  can  survey 
his  domain  daily,  ascertain  his  requirements,  and  make  his  decisions 
on  first-hand  information.  Supermarket  management  is  more  re- 
moved from  the  customer./  The  business  is  larger  and  more  complex, 
the  operation  is  more  widespread  and  diversified,  and  competition 
among  the  markets  is  rampant.  These  factors  indicate  the  growing 
need  in  a  supermarket  for  research  to  furnish  reliable  data  to  man- 
agement for  decision  making. 

Research  activities  in  a  supermarket  are  directed  toward  market- 
ing or  merchandising  functions  and  operating  practices.  Frequently 
the  marketing  and  operating  activities  in  a  supermarket  are  difficult 
to  separate.  By  definition,  marketing  research  is  the  gathering,  re- 
cording, and  analyzing  of  all  facts  about  problems  relating  to  the 
transfer  and  sale  of  goods  and  services  from  producer  to  consumer.2 
Operations  research  is  the  prediction  and  comparison  of  the  values, 
effectiveness,  and  costs  of  a  set  of  proposed  alternative  courses  of 
action  involving  man-machine  systems.3  Operations  research  uses  a 
model  of  the  action  that  has  been  developed  analytically  by  a  logical 
and,   when   feasible,   mathematical   methodology,    the   values    for 

2  Harper  W.  Boyd  and  Ralph  Westf all,  Marketing  Research  ( Homewood, 
Illinois:  Richard  D.  Irwin,  Inc.,  1956),  p.  4. 

3  Joseph  McCloskey  and  Florence  Trefethen,  Operations  Research  for  Man- 
agement (Baltimore:  The  Johns  Hopkins  Press,  1954),  p.  xxiii. 


Managerial  Policy  and  Perspective  233 

which  are  derived  from  past  actions  or  designed  operational  experi- 
ments. While  operations  research  normally  has  a  broad  connotation 
and  overlaps  the  area  of  marketing  research,  the  technique  is  used 
in  supermarkets  more  narrowly  to  denote  logistic  problems  in  the 
physical  movement  of  merchandise  in  performing  buying,  selling, 
warehousing,  delivery,  and  handling  functions. 

Marketing  research  applicable  to  the  supermarket  industry  in- 
cludes activities  pertaining  to  (1)  markets,  (2)  products,  (3)  moti- 
vation, (4)  internal  sales  analysis,  and  (5)  advertising  and  display. 
Market  research  includes  a  study  of  the  characteristics  of  the  cus- 
tomers and  their  purchasing  habits.  It  also  embraces  the  detailed 
research  needed  for  new  store  locations.  Prior  to  sinking  a  substan- 
tial investment  in  a  new  outlet  or  contracting  to  make  rental  pay- 
ments over  a  long  period  of  years,  management  must  make  exhaus- 
tive studies  of  the  past,  present,  and  future  possibilities  of  the 
location.  Only  too  frequently  markets  have  been  opened  in  unsuit- 
able areas.  This  practice  is  abetted  by  promoters  who  are  willing 
to  make  deals  and  concessions  to  put  the  land  into  use  and  by 
supermarket  operators  who  are  willing  to  take  on  an  outlet  with 
low,  fixed  expenses  so  that  a  competitor  won't  get  it,  even  though 
the  location  is  questionable.  Product  research  measures  consumer 
preference  for  brands,  types  of  products,  packaging,  size,  and  other 
physical  attributes.  Motivation  studies  measure  why  people  buy  a 
particular  product  or  patronize  a  certain  market.  The  store  image 
in  the  minds  of  the  customers  can  be  depicted  along  with  psycho- 
logical attitudes  held  by  consumers  as  to  color  and  style  of  markets. 
Sales  analysis  furnishes  information  on  the  movement  of  particular 
products  as  well  as  profitability  of  departments  and  product  lines. 
Advertising  and  display  research  measure  the  effectiveness  of  the 
types  and  kinds  of  strategy  employed. 

Of  all  the  research  designs  available  to  perform  the  various  mar- 
keting research  studies,  the  experimental  method  offers  supermarket 
management  the  most  unusual  opportunity  to  collect  data  as  to 
permit  clear  and  unconfused  conclusions  as  to  the  correctness  of 
an  hypothesis  which  involves  cause-and-effect  relationships.  The 


234  Supermarketing 

data  obtained  from  experimentation  can  furnish  management  vital 
information  for  decision  making.  Supermarket  concerns  possibly 
have  the  best  facilities  of  any  business  for  conducting  experimental 
research  in  the  area  of  social  science.  Only  those  industries  engaged 
in  the  physical  sciences  appear  more  favorably  situated  to  conduct 
experiments.  Supermarket  management  can  use  experimentation  to 
check  advertising  effectiveness,  display  techniques,  product  prefer- 
ences, pricing  strategy,  and  packaging.  Even  small  concerns  can  use 
the  various  experimental  methods  such  as  the  before-after,  the  be- 
fore-after-with-control  group,  and  the  after-only-with-control  group 
designs.  For  example,  the  operator  of  only  one  store  can  measure 
for  one  week  the  sale  of  potatoes  in  the  traditional  package,  intro- 
duce a  new  packaging  method  for  the  following  week,  hold  all  other 
factors  unchanged,  and  measure  the  difference  in  sales.  Consumer 
panels  which  can  serve  as  a  valuable  adjunct  to  the  buying  com- 
mittees should  not  be  restricted  to  the  large  companies.  To  facilitate 
experimentation,  concerns  should  designate  certain  stores  for  the 
purpose  of  conducting  experimental  tests.  Necessary  facilities  for 
conducting  tests  can  be  maintained  permanently. 

Opportunities  for  the  successful  use  of  operations  research  exist 
in  supermarkets  in  the  physical  movement  of  goods  in  all  areas. 
There  is  only  a  specific  amount  of  shelf  space  in  a  given  market; 
each  new  item  purchased  takes  its  place  only  at  the  expense  of  some 
other  product.  Operations  research  can  furnish  quantitative  aids  in 
determining  what  to  buy  and  how  much  to  buy.  This  technique  also 
can  facilitate  the  warehousing  and  delivery  of  groceries.  For  ex- 
ample, one  concern  revamped  its  entire  delivery  system  so  that  se- 
lectors at  the  warehouse  loaded  the  trailers  daily,  drivers  delivered 
them  at  night  during  periods  of  little  traffic,  and  store  managers  as- 
signed the  correct  number  of  grocery  clerks  to  be  available  for  un- 
loading and  stocking  shelves  on  a  predetermined  morning.  Opera- 
tions research  also  can  be  of  value  in  the  area  of  selling  by  increasing 
efficiency  of  personnel  in  stocking  shelves  and  operating  check-out 
stands.  For  some  concerns,  it  has  led  to  the  establishment  of  stand- 
ards by  departments  for  man-hours  expended  in  relation  to  sales. 


Managerial  Policy  and  Perspective  235 

Produce  and  meat  departments,  for  example,  need  not  necessarily 
have  the  same  ratio  of  sales  to  man-hours. 

These  illustrations  indicate  the  types  of  opportunities  that  are 
available  in  a  supermarket  for  operations  research.  The  principal 
contribution  of  this  technique  is  that  it  presents  to  management  al- 
ternative opportunities  or  courses  of  action  in  quantitative  terms. 
Management  can  use  these  data  in  making  decisions. 

Product  research  of  the  technical  type  involved  in  producing  an 
item  that  will  accomplish  certain  results  has  been  passed  on  to  the 
jnanufacturer  by  the  supermarket  industry.  Expenditures  of  this 
type  thus  do  not  appear  as  a  cost  to  the  supermarket  in  performing 
its  functions.  Competition  for  shelf  space  has  been  so  intense  that 
food  manufacturers  have  been  forced  to  develop  a  multitude  of  new 
and  improved  products  which  are  marketed  in  cooperation  with 
supermarket  concerns.  This  research  involved  in  the  creation  of  form 
utility  rightfully  belongs  to  the  manufacturer.  But,  as  the  super- 
market industry  becomes  more  integrated  and  active  in  manufactur- 
ing, management  may  have  to  face  the  problem  of  product  develop- 
ment and  not  depend  so  much  on  the  research  accomplishments  of 
other  manufacturers  as  it  has  in  the  past.  Some  compromise  has  ap- 
peared in  which  supermarkets  and  food  manufacturers  have  en- 
gaged in  joint  research  efforts. 

In  summary,  the  larger  members  of  this  industry  have  tended  to 
do  most  of  the  research  in  the  areas  of  marketing  and  operations. 
The  total  amount  spent  as  a  percentage  of  sales  has  appeared  neg- 
ligible for  the  industry  as  a  whole.  Management  of  some  concerns 
has  rationalized  its  position  on  limited  research  by  contending  that 
this  activity  is  not  needed,  inasmuch  as  operations  are  flexible  and 
the  market  is  in  constant  contact  with  the  consumer.  Or,  under  the 
guise  of  research,  management  has  used  casual  observation  to  sub- 
stantiate  ideas  or  concepts.  Casual  observation  is  not  scientific  in  its 
approach  because  it  is  not  objective,  subject  to  accurate  measure- 
ment, or  conducted  exhaustively.  Managements  of  individual  con- 
cerns must  assess  the  benefits  derived  from  true  research  versus  the 
cost  involved  because  of  the  narrow  profit  margin  on  which  they  op- 


236  Supermarketing 

erate.  Money  properly  spent  on  research  can  more  than  pay  for  itself 
in  economies  of  operation  and  better  merchandising. 

RELATIONSHIP  OF  PROFIT  TO  VOLUME,  FIXED 
EXPENSE,  AND  PROMOTION 

A  supermarket  is  geared  by  management  to  transact  a  large  vol- 
ume on  a  narrow  margin  of  profit.  The  industry  has  flourished  even 
with  a  relatively  low  profit  margin  expressed  as  a  percentage  of 
sales  since  this  rate  can  reflect  a  sizable  dollar  profit  when  related 
to  a  large  volume.  This  concept  has  been  expounded  by  manage- 
ment throughout  as  a  basic  financial  tenet. 

But,  this  truism  is  only  a  partial  answer  to  the  super's  financial 
success.  The  factor  of  large  variable  costs  and  expenses,  or  of  low, 
fixed  expenses  estimated  at  6  to  7  per  cent  of  sales,  must  also 
be  considered  as  a  factor  in  the  profit  picture.  The  low  fixed  ex- 
pense of  a  supermarket  and  the  ability  of  fixed  expense  to  remain 
constant  over  a  fairly  wide  range  in  sales  accentuate  the  ability  of 
a  concern  with  territorial  diversification  to  invade  a  new  area.  Stores 
for  a  particular  location  are  planned  to  transact  a  certain  prede- 
termined present  and  future  volume.  The  design  is  such,  however, 
that  a  super  can  still  operate  profitably  even  though  a  considerable 
variation  in  actual  volume  from  planned  sales  occurs.  The  absence 
of  a  large  fixed  expense  is  a  beneficial  factor  for  a  store  in  which 
sales  fail  to  materialize.  On  the  other  hand,  the  fact  that  the  fixed 
expense  remains  constant,  even  with  a  considerable  increase  in  sales 
over  normal  anticipated  volume,  benefits  the  volume-building  mar- 
ket. Instead  of  the  2  to  3  per  cent  profit  before  taxes,  some  stores 
have  earned  5  per  cent  on  sales  as  a  result  of  a  high  level  of  volume. 
Even  though  the  investment  in  a  new  super  is  sizable,  the  fact  that 
fixed  expenses  are  low  relative  to  sales  is  an  added  inducement  to 
new  territory  invasion. 

For  an  industry  faced  with  this  relationship  of  profit  to  volume 
and  to  fixed  expense,  the  additional  or  marginal  customer  is  of  con- 
siderable importance.  The  marginal  family  that  spends  $1,000  to 
$1,500  per  year  in  a  super  must  be  obtained  and  retained.  The  mar- 


Managerial  Policy  and  Perspective  237 

ginal  family  reflects  a  sizable  increase  in  profits,  both  as  a  percent- 
age of  sales  and  of  net  worth  for  a  supermarket  operating  at  the 
normal  volume  for  which  it  was  designed.  For  example,  if  local  man- 
agement of  a  typical  super  operating  at  normal  volume  can  induce 
an  additional  hundred  families  to  shop  regularly  at  the  market,  an 
increase  in  profits  of  1  per  cent  as  a  percentage  of  sales  for  that 
market  is  possible.  Retention  of  the  consumer  is  vital  since  a  loss  of 
a  customer  can  reduce  profits  just  as  the  addition  of  one  can  increase 
return.  This  is  why  trading  stamps  and  other  promotional  devices 
have  met  with  such  wide  adoption  by  the  industry.  In  the  near 
future,  increased  competition  will  make  for  even  wider  use  of  pro- 
motional devices.  Management  easily  could  consider  funds  spent  on 
continuous  promotion  as  a  short-term  capital  investment  on  which 
earnings  now  and  in  the  very  near  future  are  possible.  Some  of  the 
best  creative  brainpower  should  be  devoted  to  the  development  of 
new  promotion  ideas. 

The  prize  of  profits  is  held  out  to  all  supermarket  competitors  in 
a  trading  area  as  a  significant  reward  for  attracting  these  marginal 
families.  Unfortunately,  most  promotion  tends  to  be  transitory  in 
effect.  Other  operators  mimic  the  successful  concern.  Thus  it  is  a 
constant  race  among  the  competitors  to  attract  the  customers.  And 
while  the  profit  prize  may  not  be  fully  attained  by  any  one  market, 
the  manager  who  doesn't  advertise  and  promote  to  gain  consumer 
patronage  will  be  left  literally  "in  the  dust,"  with  the  remaining  com- 
petitors still  in  the  lead.  As  more  supers  are  opened,  the  marginal 
families  continue  to  be  drawn  away  from  the  existing  markets  and 
detract  from  their  earnings.  However,  new  markets  should  be 
opened  only  after  careful  research  has  been  performed  to  forecast 
the  success  of  the  venture.  Yet,  the  wide  range  of  volume  over  which 
a  given  market  can  operate  and  still  be  profitable  is  a  lure  to  open- 
ing new  outlets  and  will  continue  to  make  for  highly  competitive 
conditions.  There  is  no  lessening  of  it;  the  conclusion  is  that  compe- 
tition among  the  supermarket  members  will  be  more  intensive  in 
the  years  immediately  ahead. 


238  Supermarketing 

MERCHANDISING  POLICIES 

Executives  in  retail  concerns  basically  must  be  merchandisers.  This 
is  especially  true  for  all  levels  of  supermarket  management.  All  store 
personnel  must  realize  they  are  part  of  a  merchandising  team.  Their 
economic  justification  for  employment  is  that  the  store  in  which  they 
work  adds  value  to  the  merchandise  sold.  Basically,  a  supermarket 
buys  81  cents  worth  of  merchandise  from  its  suppliers  which  it  sells 
for  $1.00  to  its  customersVWhether  a  consumer  will  pay  this  19-cent 
differential  is  a  direct  function  of  the  merchandising  skill  of  the 
store  management  and  the  efforts  of  all  employees. 

The  term  merchandising  was  defined  in  this  text  as  the  practice 
of  making  certain  that  the  products  sold  meet  the  needs  and  desires 
of  the  customers;  at  the  same  time  the  goods  must  be  presented 
effectively.  In  the  main,  supermarkets  have  been  effective  merchan- 
disers of  food  products.  On  a  more  limited  scale,  supers  have  been 
moderately  successful  in  merchandising  nonfoods.  At  the  local  level, 
skillful  tactics  in  merchandising  nonfoods  have  not  always  been 
demonstrated. 

Supermarket  executives  merchandise  when  they  screen  the  100  to 
200  new  products  presented  weekly  for  their  inspection  and  decide 
which  ones  will  sell.  Powerful  buying  committees  have  been  estab- 
lished to  help  make  the  selection  process  more  rational  and  free  from 
personal  prejudice.  In  cases  of  doubt,  the  marketing  research  tech- 
niques of  test  stores  or  consumer  panels  have  been  used.  This  selec- 
tion of  merchandise  by  management  constitutes  a  major  factor  in 
determining  the  success  of  the  venture.  In  an  endeavor  to  please 
the  consumer  further,  management  has  increased  the  number  of 
lines  handled  almost  yearly  in  the  postwar  era.  The  wide  line  of 
products  in  turn  has  forced  manufacturers  into  a  continuous  battle 
both  to  attain  and  then  retain  shelf  space. 

Food  manufacturers  have  become  highly  cognizant  of  product 
policy.  They  have  developed  through  research  a  broad  line  of  con- 
venience goods  and  other  new  items  such  as  pot  pies,  TV  dinners, 
and  instant  hot  cereals.  The  near  future  of  food  manufacturers  de- 


Managerial  Policy  and  Perspective  239 

pends  on  producing  new  convenience  goods  which  meet  the  needs 
of  the  consuming  public.  In  turn,  these  and  related  products  must  be 
pulled  through  the  channels  as  a  result  of  extensive  advertising  and 
promotion.  As  new  and  really  improved  products  continue  to  come 
out  of  the  research  laboratories  and  into  the  markets,  producers  will 
of  necessity  need  to  cooperate  with  the  supermarket  operators  to 
develop  merchandising  strategy  that  will  move  the  goods.  These 
new  items  are  the  life  blood  for  the  dynamic  supermarket  which 
strives  for  added  volume  and  greater  profit  while  retaining  its  basic 
competitive  position  in  a  trading  area. 

The  use  of  chain  brands  as  a  part  of  merchandising  strategy  has 
been  on  the  increase  in  recent  years.  Wider  use  of  chain  brands  will 
continue  as  stronger  and  larger  supermarket  chains  dominate  more 
of  the  industry.  The  increased  use  of  chain  brands  in  canned  goods, 
for  example,  will  in  time  lower  over-all  margins  on  these  items. 
Manufacturers  may  be  forced  to  innovate  pricing  systems  in  which 
staples  as  price  leaders  compete  with  chain  brands.  The  bulk  of  the 
profit  will  be  earned  by  the  manufacturer  in  new  food  specialties 
that  the  supermarket  will  not  find  suitable  to  manufacture.  But  the 
supermarket  industry  will  become  more  powerful  as  it  branches  out 
into  untried  areas  such  as  private  branding  in  prepackaged  meats. 
The  pendulum  of  customer  satisfaction  that  once  favored  the  manu- 
facturer is  now  swinging  wider  and  wider  over  the  area  of  the  super- 
market industry. 

In  the  nonfoods  area,  the  trend  will  continue  toward  increased 
sales  of  these  products.  The  rapid  growth  of  separate  nonfood  de- 
partments under  a  nonfoods  specialist  coupled  with  the  building 
of  larger  stores  able  to  handle  more  products  pretells  the  story. 
While  nonfood  sales  currently  are  about  5  per  cent  of  total  sales  of 
a  supermarket,  this  percentage  can  easily  be  doubled  in  the  near 
future  by  adding  general  lines  of  merchandise.  However,  super- 
markets must  learn  to  do  a  more  effective  job  of  merchandising  non- 
foods.  This  includes  better  product  plans  and  control  of  inventories. 
In  addition,  pricing  policies  more  in  fine  with  those  of  food  prod- 
ucts must  be  employed;  and  merchandising  techniques  for  the  sale 


240  Supermarketing 

of  seasonal  products  must  be  developed.  Inasmuch  as  there  is  a 
strong  organizational  trend  toward  separate  nonfood  departments 
under  a  specialist,  these  merchandising  prerequisites  can  be  at- 
tained. 

Merchandising  also  includes  the  effective  presentation  of  goods 
to  the  consumer.  The  produce  manager  who  trims  the  decay  from 
the  lettuce  to  make  the  head  more  salable  is  merchandising  as  is  the 
manager  who  marks  sale  prices  on  all  badly  dented  cans  and  places 
them  in  a  cart  near  the  check-out  stand.  Displays  that  create  impulse 
sales  also  are  part  of  the  merchandising  function.  Supermarkets 
have  been  the  innovator  and  proponent  of  self-service  and  impulse 
selling.  As  a  result  of  mass  display,  which  psychologically  tends  to 
make  people  buy,  the  supers  have  found  an  unusually  prolific  source 
of  unplanned  purchases.  However,  wider  use  of  experimental  re- 
search must  be  adopted  in  order  to  gain  maximum  benefit  from  dis- 
play. For  example,  before-and-after  studies  should  be  used  more 
widely  to  measure  the  impact  of  a  particular  display  arrangement. 
Also,  psychological  tests  of  the  consumer  should  be  made  to  ap- 
proach more  scientifically  the  subject  of  display. 

The  display  practices  of  the  supers  in  turn  have  forced  manufac- 
turers to  revamp  their  merchandising  policies  and  to  adopt  better 
packaging,  branding,  and  display  practices.  As  supermart  chains 
become  more  powerful  through  integration,  manufacturers  may  be 
forced  to  establish  tailor-made  displays,  promotions,  and  deals  for 
different  kinds  and  classes  of  stores.  In  turn,  representatives  of  the 
manufacturers  will  be  better  merchandisers  and  devote  less  time  to 
being  only  salesmen. 

STORE  OPERATIONS 

Management  must  realize  that  the  economic  justification  for  a 
supermarket  lies  in  the  time,  place,  and  ownership  utility  (or  use- 
fulness) the  store  gives  the  merchandise  it  sells.  This  measure  of 
value  imparted  to  the  goods  is  measured  by  the  gross  margin.  How- 
ever, in  order  to  perform  its  economic  function,  a  super  must  have 
physical  facilities  and  personnel  with  which  to  operate.  These  areas 


Managerial  Policy  and  Perspective  241 

of  store  operations  are  growing  in  importance  and  complexity  with 
the  size  of  the  markets  and  the  unionization  movement. 

Management  currently  faces  the  problem  of  furnishing  individual 
stores  more  and  more  selling  space  and  larger  parking  facilities.  One 
solution  for  additional  selling  space  is  better  control  of  inventory 
and  ordering  procedures  through  use  of  electronic  computers  so  that 
less  storage  is  needed  at  the  store.  Also,  processing  activities  con- 
ceivably could  be  centralized  in  many  concerns;  this  would  furnish 
additional  display  facilities.  Thus,  within  limitations,  management 
can  remodel  and  offer  a  market  some  additional  selling  space.  How- 
ever, the  added  space  from  relocating  processing  activities  in  most 
instances  will  not  offer  sufficient  space,  and  the  markets  will  have 
to  be  relocated  in  the  same  area  if  possible  in  the  near  future.  This 
change  in  location  will  have  strong  repercussions  on  the  financial 
community  holding  mortgages  on  present  supermarket  properties 
that  lack  sufficient  facilities.  Furthermore,  management  must  design 
new  stores  with  an  eye  on  costs,  present  and  future  requirements, 
and  flexibility  in  the  use  of  space.  The  importance  of  planning  space 
requirements  is  exemplified  in  a  recent  study  of  100  markets  that 
were  built  in  the  year  1940.4  Only  23  markets  operate  unchanged, 
whereas  26  were  abandoned  and  51  required  major  remodeling. 

Another  operating  feature  that  may  reward  a  chain  organization 
with  patronage  loyalty  is  chain  differentiation.  With  the  trend  to- 
ward fewer  and  larger  concerns  in  this  industry,  the  chains  should 
take  on  more  of  an  individualized  appearance  as  to  color,  design  of 
store  fixtures,  arrangement,  and  outside  appearance.  This  familiarity 
will  wed  customers  to  the  entire  chain  and  not  just  one  store. 

As  markets  become  larger  and  require  greater  investment,  better 
management  at  the  local  level  is  required  constantly.  There  has 
been  an  organizational  trend  in  the  industry  in  the  past  decade  for 
each  store  to  be  under  a  general  manager  who  is  responsible  for 
operations  at  the  store  level.  Department  managers  report  to  him 
and  not  some  central  specialized  supervisor.  Store  managers  must 

4  "NAFC  Looks  into  the  Future,"  Super  Market  Merchandising,  XIX,  no.  12, 
December,  1955,  p.  61. 


242  Supermarketing 

be  trained  to  be  business  executives  with  administrative  prowess; 
they  must  be  merchandisers,  advertisers,  and  publicists  as  well.  Ex- 
ecutive development  programs  for  middle  management  in  decision 
making  and  case  study  are  a  must  if  this  industry  is  to  be  successful 
in  operating  larger  stores  with  greater  varieties  of  merchandise  in 
the  future.  Some  companies  have  taken  steps  in  this  direction  by 
sending  key  personnel  to  universities  that  offer  programs  in  execu- 
tive development;  others  have  developed  short-term  clinics  for  their 
personnel.  The  Super  Market  Institute's  program  of  executive  train- 
ing has  drawn  favorable  response,  but  more  positive  action  must 
be  taken  in  this  entire  area  of  development  and  management  train- 
ing. 

Many  concerns  have  attracted  young,  capable  future  leaders,  but 
the  industry  as  a  whole  apparently  has  failed  to  draw  its  share  of 
junior  executives  in  competition  with  industry  generally  and  de- 
partment, drug,  and  variety  stores  in  particular.  Universities  hear 
little  about  the  supermarket  industry.  Supers  have  not  made  them- 
selves competitive  in  search  for  the  top  talent  needed  because  of  the 
growing  size  of  markets  and  the  intense  competition  facing  the 
stores.  This  does  not  mean  to  imply  that  hard  work  and  long  hours 
should  be  played  down,  but  the  rewards  to  management  could  be 
accentuated  in  salary,  bonus,  stock  options,  insurance,  and  retire- 
ment. Organization  charts  clearly  showing  paths  for  promotion 
should  be  publicized;  opportunities  for  training  programs  and  ex- 
ecutive development  must  be  made  available. 

No  big  business  can  operate  without  effective  personnel.  Workers 
are  a  vital  part  of  the  operation  in  a  supermarket.  Those  who  have 
daily  contact  with  the  public,  from  the  grocery  clerks  stocking 
shelves  to  the  check-out  personnel,  form  a  part  of  the  store  image. 
Supers  should  be  a  good  place  in  which  to  work  as  well  as  to  shop. 
Individuals  must  be  trained,  motivated,  and  made  part  of  the  store 
team  to  make  them  efficient.  In  this  era  of  high  labor  costs,  the  super- 
market stands  today  as  a  monument  for  all  retailers  and  industry 
alike  to  envy.  The  supermarket  and  self-service  are  synonymous,  and 
yet,  6  to  7  per  cent  of  the  sales  dollar  expended  on  labor  is  a  sub- 


Managerial  Policy  and  Perspective  243 

stantially  larger  percentage  of  the  sales  dollar  than  that  paid  out 
by  the  pioneers  in  the  field.  Added  services  have  been  offered  the 
consumer  in  "traded  up"  markets  that  necessitate  additional  per- 
sonnel expenditures,  but  management  must  watch  this  expense  so 
that  the  super  does  not  lose  its  "claim  to  fame."  Increased  expense 
for  personnel  must  be  matched  with  increased  output  from  the 
worker;  and  management  must  furnish  the  equipment  and  facilities 
for  increased  efficiency.  Rising  expenses  generally  will  continue  to 
be  a  constant  threat  for  management,  which  must  counter  with  in- 
creased productivity  from  the  worker,  more  efficient  methods  and 
equipment,  complete  self-service,  better  use  of  resources,  and  the 
elimination  of  unnecessary  frills. 

FINANCING  GROWTH 

The  aggressive  expansion  plans  pursued  by  management  in  this 
industry  have  made  financing  a  major  issue.  Dynamic  growth  over 
a  protracted  period  of  time  cannot  occur  without  adequate  funds. 
Management  has  acquired  assets  to  operate  the  business  through 
(1)  reinvesting  of  earnings,  (2)  selling  of  equity  securities,  (3) 
borrowing,  and  (4)  leasing.  All  four  methods  are  used  widely. 

Operations  of  the  members  of  this  industry  in  the  main  have  been 
profitable.  While  the  earnings  as  a  percentage  of  the  sales  dollar 
have  been  a  modest  2  to  3  per  cent  before  taxes,  profits  on  equity 
capital  have  appeared  excellent.  Over  the  years  management  has 
plowed  back  earnings  into  the  business  to  finance  growth  and  im- 
provements. Dividend  policies  have  been  conservative,  even  for 
companies  with  widely  held  common  stocks.  Since  the  industry  is 
expected  to  grow,  no  major  change  in  this  dividend  policy  for  the 
industry  appears  imminent.  Management  of  individual  concerns 
must  realize,  however,  that  if  growth  diminishes,  stockholders  will 
insist  on  larger  dividends. 

Many  of  the  supermarket  chains  that  dominate  the  industry  have 
sold  equity  securities  in  the  capital  markets.  The  investment  attitude 
of  the  public  toward  the  industry  in  general  and  specific  concerns 
in  particular  is  important  if  the  industry  is  to  obtain  equity  funds 


244  Supermarketing 

advantageously.  Many  investors  are  attracted  to  growth  equities. 
The  retail  food  business  in  itself  is  relatively  stable  and  noncyclical. 
It  faces  gradual  growth  as  the  population  rises;  and  it  is  influenced 
only  slightly  by  changes  in  per  capita  family  income.  This  also  is 
the  case  of  the  electric  power  industry  whose  members  generally 
have  attained  a  high  investment  status  for  their  equity  securities  as 
a  result  of  the  monopoly  feature  in  their  services.  Supermarkets,  the 
principal  segment  of  the  food  store  group,  face  strong  competition 
in  the  market  place.  They  have  countered  with  aggressive  practices 
that  have  imparted  growth  characteristics  to  their  division  of  the 
food  store  group.  But,  as  a  class,  supermarket  shares  are  not  likely 
to  attain  in  the  near  future  the  status  of  a  utility  equity  because  of 
this  turmoil  in  the  market.  On  the  other  hand,  the  supermarket  con- 
cerns lack  the  growth  aura  of  companies  in  the  fields  of  chemicals, 
missiles,  and  electronics.  Stocks  of  these  concerns  traditionally  sell 
at  a  high  multiple  of  earnings  and  considerably  above  their  net  tan- 
gible book  value  per  share.  Equity  financing  for  supermarkets  gen- 
erally will  continue  more  on  the  basis  of  good-grade  industrial  con- 
cerns. The  financial  community  is  aware  that  the  supermarket  is  not 
completely  immune  to  recessions.  Competitive  pressures  can  force 
concerns  to  pass  on  to  the  customers  reductions  in  the  cost  of  mer- 
chandise. These  pressures,  coupled  with  the  trend  toward  handling 
merchandise  with  higher  margins,  can  squeeze  gross  profit  in  a 
period  of  economic  turbulence,  such  as  during  a  steel  strike.  Since 
the  cost  of  handling  food  in  a  supermarket  is  tied  more  to  the  ton- 
nage handled  than  to  revenue,  expenses  in  a  recession  can  increase 
relative  to  sales  and  squeeze  net  profit.  In  addition,  the  growing 
trend  toward  more  luxury  items  can  make  dollar  sales  more  volatile. 
Many  individual  members  of  the  supermarket  industry,  primarily 
the  medium-sized  chains,  have  experienced  remarkable  sales  and 
earnings  growth  resulting,  in  part,  from  acquisitions.  The  financial 
community  has  recognized  these  features  and  has  placed  a  premium 
price  on  the  common  stocks  of  these  concerns  more  in  line  with 
those  of  other  growth  equities.  The  very  largest  concerns,  ham- 


Managerial  Policy  and  Perspective  245 

strung  by  possible  antitrust  legislation,  tend  to  have  their  common 
stocks  sell  on  a  more  conservative  basis.  The  small  concerns  or 
supers  with  one  store  are  for  the  most  part  dependent  on  local  fi- 
nancing for  expansion.  As  a  result  of  the  risk  involved  in  a  limited 
number  of  outlets  and  the  relatively  small  number  of  possible  shares 
outstanding,  the  small  companies  will  find  it  difficult  to  attract  equity 
funds  in  the  national  capital  markets  and  will  depend  upon  the  in- 

|  genuity  of  management  to  obtain  equity  funds  locally. 

Supermarket  management  must  borrow  on  the  most  favorable 
terms  possible  in  this  narrow-profit  industry.  To  do  this,  it  will  be 

I  necessary  to  maintain  a  satisfactory  financial  condition  and  operat- 
ing record.  Furthermore,  management  (especially  of  the  smaller 
firms)  should  make  certain  that  capable  younger  executives  are 
available  in  the  organization  to  take  over  the  reins.  This  has  been 

!  a  weakness  in  many  of  the  smaller  firms  and  in  part  has  contributed 
to  the  increase  of  mergers  in  the  industry.  Supermarkets  have  bor- 
rowed extensively  for  working  funds,  for  expansion,  equipment 
financing,  and  real  estate  acquisitions.  It  is  not  unusual  for  debt  to 
be  equal  to  net  worth.  There  appears  to  be  no  letup  in  the  need 
for  funds  in  the  immediate  future;  thus  debt  will  remain  heavy. 

Management  of  supermarkets  has  been  astute  in  its  method  of 
controlling  assets  through  lease.  While  a  concern  is  liable  for  lease 
payments  over  an  extended  period  of  years,  the  company  actually 
uses  assets  that  are  financed  over  a  long  term  by  others.  Supers  have 
been  forced  to  pioneer  new  locations  with  modern  stores  that  re- 
quire a  substantial  investment  in  equipment.  Under  the  lease  ar- 
rangement, the  fixed  assets  used  do  not  appear  on  the  balance  sheet, 
nor  do  the  lease  payments  contracted  for  over  a  period  of  years  ap- 
pear as  a  liability.  Inasmuch  as  supermarts  are  merchandising  or- 
ganizations that  thrive  on  a  large  volume  of  fast-moving  merchan- 
dise, the  lease  has  proved  an  essential  element  in  expansion.  With 
growing  need  for  cash  to  finance  larger  inventories  and  moderniza- 
tion, the  lease  method  will  be  more  essential  in  the  future,  espe- 
cially during  periods  of  tight  money  and  high  interest  rates. 


246  Supermarketing 

DETERRENTS  TO  SUPERMARKET  GROWTH 

Management  must  recognize  certain  limiting  internal  and  external 
forces  that  restrict  the  supermarket  growth;  some  concerns  are  par- 
ticularly vulnerable. 

Consider  the  first  limitation,  namely,  the  distribution  cost  cycle. 
According  to  Malcolm  P.  McNair: 

It  seems  to  be  characteristic  of  new  types  of  distributive  enterprises 
that  in  the  first  state  of  their  development  they  gain  a  foothold  primarily 
by  means  of  low  prices.  In  the  second  stage  they  "trade  up"  the  quality 
of  the  merchandise  carried,  and  in  the  third  stage  they  compete  by  offer- 
ing services.  Companies  in  this  third  stage,  unless  they  are  managed  with 
exceptional  ability,  not  uncommonly  encounter  an  increasing  cost  of  doing 
business,  a  rising  ratio  of  fixed  investments  to  total  investments  and  a  de- 
cline in  the  rate  of  return  on  capital.5 

At  the  time  this  concept  was  advanced,  the  large  food  chains  had 
made  substantial  sales  gains  in  the  food  store  industry.  But  they  had 
entered  the  third  stage  of  the  cycle,  and  their  rate  of  growth  was 
decreasing.  The  analysis  in  this  text  indicates  that  although  the 
supermarket  industry  is  relatively  young  in  years  and  has  shown 
considerable  growth,  it  also  appears  to  have  entered  the  third  stage 
of  the  distribution  cost  cycle.  To  date,  supermarkets  have  operated 
in  a  progressive  manner;  they  have  demonstrated  ability  to  experi- 
ment, to  adapt,  and  to  take  advantage  of  changing  trends.  This  has 
had  a  direct  bearing  on  their  development;  but  in  this  third  stage, 
management  must  operate  with  exceptional  ability  if  this  industry  is 
to  continue  expansion.  There  is  the  ever-increasing  problem  of  at- 
tracting young  men  to  this  field  who  are  managerial  timber.  Future 
skilled  executives  must  be  developed  for  an  industry  in  the  third 
stage  of  the  distribution  cost  cycle.  Currently,  the  competitive  situ- 
ation confronting  the  supermarkets,  coupled  with  the  basic  nature 
and  composition  of  the  industry,  indicate  vigorous  administration 

5  Malcolm  P.  McNair,  Expenses  and  Profits  in  the  Chain  Grocery  Business 
(Cambridge:  Harvard  Business  School,  Bureau  of  Business  Research,  1931, 
Bulletin  No.  84),  p.  21. 


Managerial  Policy  and  Perspective  247 

in  the  near  future.  Those  individual  concerns  under  ineffective  man- 
agement in  this  third  stage  of  the  cost  cycle  will  continue  in  the 
doldrums  until  management  changes  or  the  company  expires. 

Another  limitation  to  the  growth  of  this  industry  is  that  the  small 
food  stores  cannot  be  completely  eliminated.  They  fall  by  the  way- 
side at  a  remarkable  rate,  and  this  trend  will  continue.  But,  owners 
of  many  small  food  stores  are  not  aware  always  of  their  costs;  they 
live  in  the  rear  of  the  premises,  and  perhaps  the  husband  is  em- 
ployed elsewhere  during  the  day.  The  everlasting  hope  for  gain  and 
independence  keeps  many  small  stores  in  business. 

Machine  vending,  certain  limited-line  stores  that  are  well  en- 
trenched, and  the  superette  also  will  prevent  the  supermarket  from 
completely  dominating  the  food  store  industry.  Strategically  located 
superettes  handling  limited  brands  of  convenience  items  will  con- 
tinue to  play  a  role  in  food  store  sales.  They  have  copied  the  tech- 
niques that  made  the  supermarts  low-cost  operators.  Many  operate 
at  an  expense  rate  that  compares  favorably  with  that  of  a  super. 
Membership  in  buying  associations  or  cooperatives  enables  them  to 
lower  the  cost  of  merchandise  purchased  and  to  realize  other  ad- 
vantages such  as  cooperative  advertising.  These  endeavors  of  the 
superette  have  tended  to  reduce  the  price  advantage  of  the  super- 
market. 

In  time  the  pattern  of  food  store  retailing  probably  will  be  one 
in  which  the  majority  of  the  so-called  convenience  items  needed 
for  supplemental  shopping  will  be  handled  by  superettes  or  by  ma- 
chine vending.  A  small  core  of  limited-line  stores  will  handle  special 
products.  Small  combination  markets  will  become  relatively  insig- 
nificant volume  wise.  Strategically  located  supermarkets  will  domi- 
nate their  respective  trading  areas  as  well  as  the  food  store  indus- 
try. Gigantic  supers,  merchandising  a  wide  line  of  junior  department 
store  products  as  well  as  foods,  will  be  the  core  store  dominating 
large  shopping  centers. 

Another  deterrent  to  extensive  growth  is  the  limitation  of  size  of 
supermarkets.  All  stores  cannot  be  gigantic  operations  since  some 
consumers  prefer  the  personal  touch  and  friendly  attitude  on  the 


248  Supermarketing 

part  of  the  store  personnel  that  cannot  be  obtained  easily  in  a  mam- 
moth operation.  Personalized  management  can  lead  to  more  com- 
munity acceptance  of  the  store,  particularly  if  it  is  a  member  of  a 
large  chain. 

In  1958  the  supermarket  transacted  57  per  cent  of  total  food  store 
sales.  Eventually  the  super  will  encounter  market  saturation  at  pos- 
sibly 80  per  cent  of  total  food  store  volume.  When  this  condition 
occurs,  progress  will  be  limited  to  population  growth  unless  super- 
market activities  are  channeled  into  other  fields  of  retailing,  whole- 
saling, food  processing,  and  manufacture.  With  the  vast  distribution 
system  that  members  of  this  industry  have  attained  as  the  founda- 
tion, supers  can  invade  these  other  areas  successfully.  Unless  the 
government  intervenes,  this  appears  to  be  the  future  pattern. 

The  adaptable  supermarket  has  added  an  increasing  number  of 
nonfood  lines.  This  movement  has  been  one  of  the  industry's  recent 
developments  to  increase  sales.  Here,  too,  there  are  limitations,  but 
these  have  not  been  reached.  The  supermarkets'  successful  sales  of 
these  nonfood  lines  have  forced  drug,  variety,  and  department  stores 
to  review  their  selling  techniques.  All  three  of  these  competitors  in 
the  nonfoods  area  are  boosting  the  number  of  their  outlets,  embark- 
ing on  modernization  programs,  and  opening  branches  in  the  sub- 
urbs and  in  shopping  centers.  They  have  adopted  self-service  or 
simplified  selling  and  have  copied  the  display  techniques  of  super- 
markets. The  chain  members  in  these  areas  have  been  growing  in 
size  through  horizontal  and  vertical  integration.  For  example,  many 
drug  chains  now  produce  pharmaceuticals,  toiletries,  and  ice  cream; 
many  process  films.  At  the  retail  level,  these  drug  chains  have  broad- 
ened their  product  lines  to  include  glassware,  books,  hardware,  toys, 
jewelry,  foodstuffs,  and  appliances.  Where  local  regulations  permit, 
packaged  liquor  has  been  dispensed.  Department  stores,  with  their 
new  satellite  units  in  outlying  shopping  centers,  also  handle  in- 
creased lines  of  baked  goods,  frozen  foods,  and  convenience  food 
products  such  as  completely  prepared  dinners  for  the  busy  shopper. 
Variety  stores  have  broadened  their  lines  in  the  impulse  soft-goods 
area.  The  trend  toward  scrambled  merchandising  among  all  types 


Managerial  Policy  and  Perspective  249 

of  large  retailers  continues  on  the  increase.  In  the  near  future  there 
will  be  more  stress  on  food  items  of  the  convenience  type  by  the 
drug,  department,  and  variety  stores.  Trends  are  under  way  to  make 
all  three  of  these  resemble  the  supermarket  more  closely. 

THE  ILLUSIVENESS  OF  GOOD  WILL 

The  supermarket  is  constantly  in  the  public  eye  inasmuch  as  food 
shopping  is  done  frequently.  It  is  imperative  that  supermarket  man- 
agement recognize  the  importance  of  the  good  will  that  establishes 
a  patronage  attachment  for  trading  at  a  particular  store.  No  funda- 
mental differences  exist  among  supermarkets  as  to  basic  products, 
prices,  and  values,  inasmuch  as  this  field  is  so  highly  competitive. 
Any  manager  who  believes  that  the  only  prerequisite  for  success 
is  to  provide  good  merchandise  values  at  competitive  prices  is  in 
error.  Management  must  fashion  a  store  image  that  is  favorable  in 
the  eyes  of  the  general  public  in  order  to  gain  a  patronage  follow- 
ing. 

Store  differentiation  can  be  due  in  part  to  appearance,  facilities, 
advertising,  promotional  devices,  or  special  merchandising  tech- 
niques, all  of  which  have  been  stressed  in  this  chapter.  These  are  all 
part  of  the  store's  personality.  But  there  is  some  illusive  factor  in 
the  store  image  that  is  difficult  to  measure;  generalizations  about 
it  are  difficult  to  make  because  of  the  diverse  nature  of  the  industry 
and  community  differences.  In  the  main,  this  illusive  feature  in  good 
will  for  an  individual  concern  and  for  the  industry  as  well  is  a  func- 
tion of  management's  attitude  toward  the  consumers,  the  suppliers, 
the  employees,  the  governmental  authorities,  and  the  community  in 
which  it  operates.  How  well  management  meets  the  expectations 
of  these  interests  will  be  reflected  in  part  in  the  store  image  and  in 
the  success  of  the  venture.  These  preconceived  standards  of  be- 
havior on  the  part  of  the  different  groups  are  not  necessarily  in 
harmony  with  each  other,  nor  are  they  always  of  the  same  impor- 
tance to  the  welfare  of  the  supermarket  concern. 

The  supermarket  is  not  an  eleemosynary  institution;  it  is  operated 
primarily  for  the  profit  of  the  owners.  But  its  operations  are  influ- 


250  Supermarketing 

enced  by  the  public's  attitude  toward  it.  What  has  supermarket 
management  done  to  generate  a  favorable  image  in  the  minds  of 
these  interest  groups? 

To  the  American  consumer,  the  supermarket  has  lowered  food 
costs  and  raised  the  plane  of  living.  It  has  given  the  customer  what 
is  wanted  at  a  lower  cost.  These  are  its  most  noteworthy  achieve- 
ments from  the  viewpoint  of  the  consumer.  Individual  concerns  that 
have  not  been  completely  consumer-oriented  have  suffered  in  the 
battle  for  survival  in  this  competitive  industry.  While  there  are  limits 
in  placating  the  customers,  conditions  in  this  industry  dictate  that 
management  must  consider  foremost  in  its  decisions  the  wants  and 
desires  of  the  consumer  so  that  it  can  return  a  satisfactory  profit  to 
the  stockholders. 

Supermarket  management  has  shifted  the  balance  of  power  away 
from  the  food  manufacturer  and  in  the  direction  of  the  retailer.  As 
a  result  of  this  countervailing  power,  supers  have  tended  to  relegate 
the  wholesaler  more  or  less  to  a  status  of  delivery  agent  for  the 
manufacturer  who  performs  the  selling  function  but  who  cannot 
handle  physical  distribution  of  the  merchandise  as  economically  as 
the  wholesaler.  Manufacturers  have  been  forced  to  give  ground  in 
all  quarters.  Their  entire  selling  program  has  undergone  change  for 
the  better  by  lowering  distribution  costs.  Supermarket  management 
must  realize,  however,  that  the  functions  of  the  manufacturers  still 
are  vital  to  the  success  of  this  industry  despite  all  its  integration 
practices.  Many  consumers  prefer  the  national  brands.  Management 
must  continue  to  work  cooperatively  with  the  suppliers  in  an  en- 
deavor to  merchandise  on  a  profitable  basis  all  the  products  the 
consumer  desires.  Unless  fair  dealings  exist  between  the  supers  and 
the  manufacturers,  new-product  development  will  be  retarded,  and 
the  supers  will  lose  their  "life  blood"  or  added  source  of  profit  re- 
sulting from  new  items. 

Management's  relations  with  employees  affect  the  store  image. 
In  order  to  attract  and  keep  desirable  personnel,  management  must 
offer  workers  steady  employment,  opportunities  for  training  and 
advancement,  satisfactory  working  conditions  and  hours,  fringe  ben- 


Managerial  Policy  and  Perspective  251 

efits,  and  a  competitive  wage.  These  are  all  subject  to  differences  in 
opinion  between  management  and  employees,  but  the  differences 
should  be  resolved  without  resort  to  strikes  so  as  not  to  engender 
bitterness  that  may  be  expressed  by  store  personnel  in  daily  contact 
with  the  customers.  The  relatively  pleasant  employee-employer  re- 
lations that  have  characterized  this  industry  must  be  maintained, 
and  the  markets  must  continue  to  function  under  a  team  effort. 

Decisions  of  supermarket  management  that  affect  relationships 
with  the  community  and  the  government  should  be  summed  up  in 
the  phrase,  "Supermarkets  Are  Responsible  Citizens."  Obviously  a 
supermarket  cannot  devote  100  sq  ft  of  space  for  a  charity  cookie 
sale,  but  management  must  stay  in  tune  with  the  expectations  of 
the  community.  These  differ  by  location,  and  management  on  the 
proper  occasions  should  make  its  sidewalks  available  for  charity 
drives,  put  signs  in  the  windows  for  relief  funds,  and  assist  in  blood 
banks  and  cancer  drives.  How  active  managers  are  in  civic  affairs 
will  depend  on  the  community  attitude.  Management  must  know 
what  is  expected  of  the  market  to  make  it  a  responsible  citizen. 

Still  another  problem  of  community  relationships  is  the  advis- 
ability of  continuing  a  policy  of  "scrambled  merchandising"  which  is 
detrimental  to  many  limited-line  stores  and  small  combination  mar- 
kets near  it.  Similarly,  other  community  members  in  the  nonfood 
areas  feel  the  impact  of  the  supermarket.  Management's  drive  to 
sell  general  merchandise  that  is  easily  displayed,  attractively  pack- 
aged, inexpensively  priced,  and  impulsively  purchased  has  been  to 
the  detriment  of  department,  drug,  variety,  and  hardware  stores, 
to  name  but  a  few.  While  the  battle  of  the  market  place  occurs  daily 
and  no  retailer  has  the  assurance  of  guaranteed  profits,  the  victori- 
ous supermarket  should  not  disdain  its  rivals.  An  old  saying  should 
be  remembered:  "Don't  rub  salt  into  the  wound." 

To  paraphrase  from  a  childhood  game,  the  supermarket  currently 
is  "King  of  the  Hill/'  How  long  it  remains  on  top  is  a  function  of 
the  industry's  skill  in  keeping  a  favorable  image  in  the  eyes  of  the 
general  public  whose  wants  must  be  served  so  that  the  cash  register 
will  continue  to  ring  up  larger  profits.  For  the  individual  firm,  sue- 


252  Supermarketing 

cess  in  this  highly  competitive  industry  will  depend  primarily  upon 
management's  ability  to  think  creatively  so  as  to  be  a  leader  in  judg- 
ing the  wants  and  whims  of  the  consumer.  And  if  a  competitor  gains 
some  marketing  superiority,  success  will  hinge  further  on  manage- 
ment's ability  to  recognize  quickly  any  disadvantage  and  to  take 
action  accordingly. 


APPENDIX  A 


119  COST-CUTTING  IDEAS 

Management  is  confronted  with  the  Herculean  task  of  controlling,  and 
if  possible  reducing,  expenses  of  operation  if  the  supermarket  is  to  per- 
form its  merchandising  activity  at  a  profit.  Recognizing  this  need,  the 
magazine  Super  Market  Merchandising  devoted  the  majority  of  its  April, 
1958,  issue  to  the  problem  of  "How  to  Fight  Costs  and  Win."  One  article 
from  this  section,  "119  Cost-cutting  Ideas,"  contained  a  reference  list  of 
pragmatic  suggestions  which  appear  to  be  of  extreme  value  to  the  super- 
market operator  who  faces  the  task  of  expense  control  at  the  firing  line. 
This  check  list  is  classified  according  to  operations,  labor,  warehouse  and 
transportation,  construction  and  maintenance,  store  departments,  and 
back  room. 

Operations 

1.  Accident  costs  can  be  reduced  by  equipping  each  store  with  a 
small  flash  camera.  Kept  at  a  handy  location,  pictures  of  each  customer 
accident  can  be  taken  immediately.  Experience  demonstrates  that  cus- 
tomers will  not  file  exaggerated  claims  if  they  know  a  photo  has  been 
taken. 

2.  A  certain  degree  of  shrinkage  can  be  controlled  in  the  area  of  the 
direct  vendor.  A  good  policy  is  to  instruct  all  vendors  not  to  put  mer- 
chandise on  shelves,  or  mix  merchandise  with  any  stock  on  hand  until 
the  person  in  charge  of  the  department  has  checked  in  the  merchandise. 
When  a  vendor  leaves,  he  must  have  any  outgoing  packages  checked  to 
see  that  no  merchandise  is  carried  out  that  is  unaccounted  for. 

3.  Have  stores  send  in  weekly  cash  reports  instead  of  daily  reports. 
This  should  save  a  lot  of  time  for  store  managers  as  well  as  for  book- 
keepers. 

4.  Proper  use  of  self -insurance  applied  to  such  things  as  collision, 
plate  glass,  holdups,  and  even  fires,  boilers,  and  cargos  can  save  you 
considerable  money.  Explore  its  possibilities  with  qualified  insurance 
agents  or  others  who  have  had  experience  with  it. 

5.  Every  time  you  create  a  new  form,  you  increase  clerical  costs  be- 
cause each  piece  of  paper  has  to  be  handled  by  many  people.  Take  time 
out  to  review  the  use  of  your  forms  and  simplify  them.  It  is  a  good  idea 
to  have  a  trial  run  of  60  to  90  days  on  every  form  that  you  introduce  be- 

253 


254  Appendix  A 

fore  making  it  a  permanent  part  of  the  business.  You  may  decide  after 
two  months  that  some  of  these  forms  are  worthless,  and  you  can  save  on 
further  clerical  expense. 

6.  To  save  paper  work  on  price  reduction  reports,  make  use  of  pilot 
stores.  Here  you  can  get  information  that  you  can  apply  to  all  your  other 
stores. 

7.  By  sorting  the  checks  yourself,  you  can  reduce  the  bank's  charges. 
This  calls  for  putting  the  checks  of  one  type  in  an  envelope. 

8.  There  is  something  in  the  Draft  Plan  to  bring  money  in  fast  from 
your  neighborhood  transfer  banks  to  the  banks  used  by  the  main  head- 
quarters disbursement  bank.  The  bank  informs  headquarters  of  the  total 
deposits  to  be  made  the  next  day.  The  money  is  made  available  at  the 
headquarters  disbursement  bank.  The  bank  informs  headquarters  of  the 
total  of  drafts.  This  plan  will  lower  the  daily  balance  in  the  neighborhood 
banks,  but  the  extra  charge  may  be  worth  it,  since  it  makes  so  much  ready 
cash  available  at  headquarters. 

9.  You  can  reduce  charges  on  customer  checks  by  sending  them  di- 
rectly to  the  main  depository  bank  rather  than  depositing  them  in  the 
local  transfer  bank. 

10.  Are  you  sure  it's  worth  the  cost  and  effort  to  list  every  customer 
check  on  a  separate  tabulation,  just  in  case  checks  are  stolen?  A  study 
of  this  may  reveal  that  you  are  recovering  very  little  money  over  a  long 
period  of  time.  You  may  be  burdening  your  managers  with  useless  and 
time-consuming  work. 

11.  If  you  are  a  small  company,  it  may  pay  you  to  hire  an  engineering 
service  to  reduce  your  insurance  rates.  The  bigger  companies  use  their 
own  men  for  this  purpose. 

12.  Don't  rely  on  a  building  alarm  for  warehouse  control.  Either  have 
an  ADT  system  or  tie  your  alarm  in  with  the  local  police  depart- 
ment. 

13.  Pay  store  employees  in  cash.  They  prefer  it.  And  you  can  save 
on  the  bank  charges,  which  can  go  as  high  as  10  cents  on  each  payroll 
check.  This  method  is  being  used  by  a  national  chain,  particularly  in  the 
bigger  stores,  where  there  is  a  full-time  cashier  on  hand  to  help  the  man- 
ager. It  is  worth  investigating  to  establish  the  proper  procedures  for  pre- 
paring the  payroll  journals. 

14.  Study  the  advantages  of  leasing  equipment,  particularly  equip- 
ment that  becomes  obsolete  fast,  such  as:  air  conditioners,  sprinklers, 
supervisors'  cars,  incinerators,  tabulating  machines,  delivery  equipment. 

15.  Have  clerks  keep  a  daily  inventory  check  on  standard  items.  It 
will  save  the  buyer's  time. 


Appendix  A  ^ 

16.  Keep  paperwork  where  it  belongs— in  the  central  office.  It  costs 
less  per  hour  there.  Even  weekly  payrolls  can  be  done  more  efficiently  at 
headquarters. 

17.  Turn  out  copies  (up  to  10,000)  of  reports,  bulletins,  etc.,  by 
xerography.  Equipment  for  this  quick,  inexpensive  process  is  made  up 
of  three  pieces:  camera,  copier,  and  fuser.  It  cuts  out  second  typing  from 
original  copy  to  stencils  and  eliminates  second  proofreading. 

18.  Use  newsprint  or  cheap  wrapping  paper  in  handling  glassware, 
rather  than  the  much  more  expensive  kraft  paper  bags. 

19.  Check  to  see  whether  your  company  should  be  paying  local  taxes 
as  a  single  corporate  unit  rather  than  as  separate  stores.  You  may  be  un- 
der unnecessary  assessment. 

20.  Set  up  a  salvage  department  to  make  daily  or  weekly  pickups  of 
waste  and  damaged  goods  from  the  stores.  It's  all  good  for  resale. 

21.  Put  up  reminders  to  your  checkers  to  look  into  the  bottom  shelf 
of  the  shopping  cart. 

22.  If  your  managers  are  paying  cash  for  store-door  deliveries,  it  may 
be  wise  to  relieve  them  of  this  burden.  Over  the  month,  the  "cash  pay- 
outs" can  amount  to  hundreds. 

23.  To  cut  public  liability  insurance  costs,  it  may  be  wiser  to  pay 
small  claims  yourself. 

24.  Use  the  "miscellaneous"  key  of  your  cash  register  to  ring  up  tax 
on  registers  that  have  no  tax  key. 

25.  Have  all  store  managers  submit  ideas  for  cost  control  before  go- 
ing ahead  on  them.  Cost  controls  can  become  big  expenses  in  themselves, 
especially  if  store  managers  start  keeping  detailed  records  without  ask- 
ing which  ones  the  head  office  may  require. 

26.  Stamp  "paid  by  cash"  clearly  on  the  face  of  merchandise  vouchers. 
In  that  way,  if  the  voucher  is  lost  or  stolen,  no  one  will  be  able  to  redeem 
it  again. 

27.  Keep  an  alphabetical  check  list  handy  in  each  store  of  people 
known  to  be  phony-check  passers. 

28.  Don't  keep  stock  on  odd-sized  bags  that  you  seldom  use.  Store 
bag  supplies  in  a  place  where  they  won't  be  damaged  in  any  way. 

Labor 

29.  Try  using  a  job  assignment  card  that  outlines  employees'  duties 
by  days.  In  this  way  the  employee  gets  definite  assignments  and  does  not 
waste  time  each  day  waiting  for  his  next  assignment. 

30.  You  can  cut  down  on  telephone  expenses  by  following  these  rules: 
Don't  allow  employees  to  send  or  receive  calls  during  working  hours 


256  Appendix  A 

(emergency  calls  excepted);  equip  only  one  phone  with  a  dial;  use  a 
buzzer  system  for  signaling;  calls  should  be  brief  and  to  the  point;  install 
pay  phones;  do  not  tie  up  office  personnel  with  details  that  can  be  handled 
by  supervisors;  check  phone  bills  carefully. 

31.  Compute  employee  tax  deductions  in  payroll  work  in  a  single  tax 
table  combining  FICA  and  withholdings.  You  can  obtain  combined  with- 
holding tables  from  companies  that  supply  accountants. 

32.  Want  to  reduce  costs  of  inventory  taking?  One  company  starts 
inventory  at  7  a.m.  on  a  Monday  morning,  using  regular  store  help  on 
a  quarterly  basis.  An  administrative  staff  member  is  sent  in  to  help  the 
store  crew.  This  gives  both  crew  and  administrators  a  better  understand- 
ing of  the  store  problems  and  leads  to  new  suggestions  for  improving  op- 
erations. 

33.  You  can  increase  productivity  in  checking  orders  if,  when  using 
two-man  teams,  the  first  half  of  the  items  on  the  invoice  are  placed  on 
one  side  of  a  four-wheel  selector  truck  and  the  other  half  on  the  other 
side. 

34.  Check  unemployment  compensation  claims  periodically.  You  may 
be  paying  tax  on  dead  claims. 

35.  List  special  prices  alphabetically  at  the  cash  registers  to  help 
checkers  with  sale  merchandise. 

36.  Cut  down  on  unnecessary  phone  calls  by  having  a  central  place 
for  locating  supervisors  after  the  switchboard  is  closed.  One  company  has 
each  supervisor  give  his  schedule  to  one  key  store  in  his  district. 

37.  Use  guide  pictures  to  help  clerks  stock  departments  in  new  mar- 
kets. Place  photos  of  segments  of  top  departments  in  other  stores  on 
shelves  where  you  want  the  merchandise.  Then  send  sufficient  opening 
inventories  to  fill  shelves.  You'll  save  stocking  time,  layout  time,  and  in- 
ventory time. 

38.  Have  the  company  nurse  make  spot  checks  at  the  homes  of  men 
who  are  absent  because  of  illness.  Usually  the  man  is  really  sick  and  will 
appreciate  a  call  from  the  nurse.  If  not,  a  friendly  talk  with  his  boss  will 
usually  keep  him  from  playing  sick  another  time.  Also,  the  calls  will  dis- 
courage other  employees  from  trying  the  same  ruse.  If  your  company  has 
no  regular  nurse,  you  can  have  your  personnel  office  check  with  em- 
ployees' doctors. 

39.  Check  time  cards  regularly  for  employees  who  are  late  three  or 
more  times  in  a  month.  Have  supervisors  talk  over  with  these  men  ways  in 
which  they  can  avoid  being  late. 

40.  Check  previous  employment  records  of  all  job  applicants  before 
you  hire  them,  to  make  sure  they  are  trustworthy.  Some  companies  em- 


Appendix  A  ^* 

ploy  an  investigation  service  to  check  prospective  cashiers,  managers,  and 
others  who  will  be  handling  large  amounts  of  money. 

41.  When  you  fire  an  employee,  keep  a  record  in  your  central  per- 
sonnel office  of  your  reasons  for  firing  and  of  his  social  security  number. 
Check  this  list  whenever  you  hire  a  new  man.  This  is  particularly  impor- 
tant where  store  managers  hire  their  own  personnel.  A  man  who  has  been 
fired  from  one  of  your  stores  for  dishonesty  may  look  for  work  in  another 
store  in  your  chain. 

42.  Careful  records  of  reasons  for  separating  employees  can  lower 
your  payments  for  unemployment  compensation  in  many  states.  The 
amount  you  have  to  pay  to  the  state  for  unemployment  compensation 
usually  is  determined  by  the  number  of  valid  claims  filed  by  former  em- 
ployees of  yours.  Thus,  if  you  can  show  that  you  fired  employees  for  rea- 
sons which  were  their  own  fault,  such  as  dishonesty,  your  unemployment 
compensation  payments  will  be  lower.  Many  employers  issue  written 
warnings  to  workers  and  have  the  workers  initial  them,  before  they  fire 
them.  Then  if  you  have  to  fire  the  workers,  the  warnings  prove  that  you 
did  so  for  good  and  just  cause. 

43.  Punch  employees'  time  cards  each  time  you  issue  laundry  to 
them,  to  make  sure  they  return  it.  Issue  laundry  according  to  a  regular 
schedule — so  many  fresh  uniforms,  aprons,  towels,  etc.,  for  each  classifica- 
tion of  worker  per  week.  Check  all  laundry  against  delivery  sheets  before 
the  driver  arrives. 

44.  To  cut  down  on  accidents,  have  store  managers  or  department 
heads  fill  out  an  accident  report  each  time  a  mishap  occurs.  In  addition 
to  having  them  fill  in  details  of  the  accident,  have  them  tell  how  the  ac- 
cident could  have  been  prevented  and  what  has  been  done  to  keep  it  from 
happening  again. 

45.  Kroger  appoints  an  employee  in  each  store  to  serve  as  "Safety 
Promoter"  for  one  or  two  months.  Working  under  direction  of  the  store 
manager,  the  "Safety  Promoter"  inspects  the  store  and  its  equipment  daily 
to  remove  safety  hazards.  At  the  end  of  his  tour  of  duty,  the  job  passes 
to  another  employee.  Albers  uses  a  similar  system.  A  "Mr.  Super  Safety" 
or  "Miss  Super  Safety"  reports  daily  to  the  manager  on  safety  conditions 
in  each  store. 

46.  Schedule  part-time  help  only  when  and  where  it's  really  needed. 
Don't  have  part-timers  standing  around  with  time  on  their  hands  in  off 
hours. 

47.  Set  up  a  system  of  department  numbers  on  pay  checks  so  that 
checks  for  each  department  can  easily  be  told  apart  from  the  others. 

48.  An  easy  way  to  eliminate  extra  help  and  overtime  problems  in 


258  Appendix  A 

stocking  new  markets  is  this  technique:  Soon  after  the  market  has  had  its 
floors  and  shelving  installed,  and  electricians,  carpenters,  and  decorators 
are  finished  with  their  work,  set  your  stocking  crews  to  work.  Let  them 
work  from  master  plans,  filling  in  first  one  front-faced  row  of  items  and 
later  depositing  the  balance  on  each  line.  As  a  gondola  or  section  of 
shelving  is  completely  stocked,  huge  sheets  of  clear  plastic  are  draped 
over  it  to  seal  it  off  from  the  dust  and  dirt  resulting  from  unfinished  work. 
When  the  store  is  ready  for  opening,  the  covers  are  removed  to  reveal 
gleaming,  dust-free  stocks. 

Warehousing  and  Transportation 

49.  For  additional  security  measures,  use  seals  on  trucks  making 
grocery  deliveries  to  stores. 

50.  Unload  and  tally  in  small  units  when  you  check  warehouse  de- 
liveries into  the  store.  That  way,  if  a  difference  shows  up  between  the 
store  receiver's  count  and  the  truck  driver's  billing  count,  you  won't  have 
to  retally  the  whole  load  to  find  where  the  trouble  is.  Here's  how  to  do  it: 
Unload  in  lots,  say,  of  20  pieces.  Mark  the  twentieth  piece.  Enter  a  "20" 
on  your  tally  sheet.  Any  difference  in  count  will  show  up  immediately 
within  the  group  of  20  pieces  and  can  be  cleared  up  in  a  few  minutes. 

51.  When  you  order  carload  shipments  from  suppliers,  specify  the 
track  over  which  it  should  be  shipped  to  reach  your  spur  of  the  railway. 
This  will  eliminate  possible  delays  through  misrouting.  Some  companies 
have  a  special  warehouse  assistant  to  study  rail  and  trucking  tariffs  and 
routings. 

52.  An  electronic  scale  in  the  dispatcher's  office  to  register  axle  loads 
of  outgoing  trucks  can  save  on  traffic  fines.  If  the  axle  load  exceeds  legal 
limits,  the  dispatcher  can  head  off  the  truck  and  direct  it  to  a  dock  for 
unloading  before  it  gets  out  on  the  road. 

53.  To  cut  paper  work  in  warehouse  receiving,  install  a  tape  recorder 
in  your  warehouse  tabulating  office  with  a  microphone  at  the  receiving 
dock.  As  merchandise  arrives,  a  clerk  dictates  receiving  into  the  micro- 
phone. Another  clerk  in  the  tabulating  department  transcribes  the  receiv- 
ings from  the  tape  recorder.  If  the  receiving  dock  and  tabulating  office 
are  too  far  apart  for  a  direct  cable  connection,  a  telephone  with  a  special 
attachment  may  be  used  for  dictating  into  the  tape  recorder.  Transcribing 
the  receivings  on  continuous  forms  further  speeds  the  operation. 

54.  Some  warehouses  install  two-way  radios  on  lift  trucks  to  maintain 
constant  contact  with  the  warehouse  office.  The  radios  eliminate  a  lot 
of  delay  and  wear  and  tear  on  warehouse  supervisors. 

55.  Have  delivery  truck  drivers  phone  the  warehouse  dispatcher's 


Appendix  A  259 

office  from  the  gate  for  instructions  on  where  to  deliver  their  load.  This 
system  helps  avoid  delivery  delays  and  traffic  snarls. 

56.  To  head  off  misrouting  of  orders  going  to  different  offices,  use 
different-color  mailing  envelopes  for  each  order  destination. 

57.  Hold  on  to  the  cardboard  cartons  in  which  warehouse  merchan- 
dise comes  to  the  store.  Then  send  them  back  for  use  a  second  time. 

58.  In  warehouse  orders,  list  items  in  any  given  line  of  goods  in  the 
same  sequence  as  they  turn  up  in  the  orders  left  by  the  service  salesman. 

59.  Send  pallets  to  local  distributors  who  do  not  already  use  them. 
And  encourage  them  to  send  palletized  deliveries  to  your  warehouse.  If 
you  sell  the  pallets  at  or  near  cost,  your  savings  in  warehouse  efficiency 
will  make  up  any  loss  many  times  over. 

60.  Price-mark  as  much  of  your  merchandise  as  you  can  in  the  ware- 
house. This  saves  the  time  it  takes  for  clerks  in  the  stores  to  look  up 
prices.  It  is  recommended  particularly  for  nonfoods. 

61.  Carry  portable  conveyors  under  trailers  of  your  trucks.  This 
avoids  the  necessity  of  having  a  complete  conveyor  system  in  small  stores. 

62.  Use  nets  to  separate  orders  for  individual  stores  in  your  delivery 
trucks.  They  allow  better  use  of  space  than  rigid  dividers. 

63.  Use  hub  mileage  meters  on  trailers  of  delivery  trucks.  Tractors 
and  trailers  seldom  travel  the  same  distances,  so  you  need  separate  mile- 
age meters  to  tell  you  when  the  trailers  should  be  serviced. 

°  64.  One  chain  has  a  store  unloading  system  that  cuts  down  time  of 
unloading  each  truck  from  a  half-hour  to  5  minutes.  The  company's  new 
markets  are  coming  equipped  with  compartments  exactly  matching  in  size 
the  standard  35-ft  trailer.  The  compartments  are  tilted  slightly,  and  the 
trailer  backs  into  its  "twin"  compartment.  Gravity  pulls  its  merchandise 
down  the  slope  on  conveyor  belts  and  pallets. 

65.  In  warehouse  receiving  you  can  get  increased  labor  productivity 
by  separating  the  palletizing  operation  from  the  storing  operation.  By 
doing  this  and  by  providing  the  palletizing  crew  with  pallet  jacks,  four- 
wheel  trucks,  or  skids,  you  can  reduce  the  number  of  men  on  the  job  by 
one-third. 

66.  One  man  working  alone  in  palletizing  groceries  and  moving  the 
loaded  pallet  out  of  the  car  is  nearly  38  per  cent  more  productive  per 
man-hour  than  a  two-man  team.  You  can  gain  economies  by  one  man, 
providing  you  leave  the  car  in  the  dock  long  enough  and  the  one  man 
does  not  have  to  unload  extremely  heavy  merchandise. 


260  Appendix  A 

Construction  and  Maintenance 

67.  Laundry  bills  can  be  cut  down  by  following  these  procedures:  As- 
sign a  responsible  employee  to  head  up  laundry  handling  in  the  markets. 
Have  employees  sign  a  record  form  every  time  a  uniform  is  issued.  Have 
employees  use  partly  soiled  coats  for  messy  work  and  change  to  clean  uni- 
forms once  the  work  is  completed. 

68.  To  cut  utility  expenses,  assign  one  person  to  oil  all  motors,  as 
specified  by  the  manufacturer;  keep  motors  clean  and  drive  belts  tight; 
replace  used  bulbs;  turn  off  lights  when  not  in  use;  check  filters  in  air 
conditioners  and  replace  or  clean  when  necessary;  check  burners  in  the 
heating  units  to  see  that  they  are  firing  properly;  check  water  lines  and 
water  heaters  against  leaks. 

69.  Investigate  whether  or  not  capacitators  can  be  installed  as  a  means 
of  cutting  power  cost,  despite  their  rather  high  initial  cost. 

70.  To  protect  shopping  carts  against  breakdowns,  observe  the  follow- 
ing rules:  Don't  use  shopping  carts  in  place  of  heavy-duty  trucks.  Don't 
use  shopping  carts  for  carry-out  service.  Make  sure  that  the  carts  are 
properly  maintained.  For  special  jobs  use  special  equipment. 

71.  Put  in  a  clock  thermostat  control  if  you  have  air  conditioning.  It 
will  shut  the  units  off  when  your  stores  are  not  open. 

72.  Put  up  prominent  notices  in  all  stores,  telling  your  employees  not 
to  throw  water  on  fires  starting  in  electrical  equipment. 

73.  Post  a  notice  near  your  garbage  disposal  machine,  telling  what 
should  not  be  thrown  in. 

74.  Channel  all  orders  for  equipment  servicing  through  central  pur- 
chasing at  headquarters.  These  people  have  the  service  contacts  and  can 
get  better  prices  than  the  store  manager. 

75.  Check  scales  to  see  that  they're  properly  calibrated.  Make  fre- 
quent test  weights.  Each  overage  costs  money;  each  underweight  can 
cost  you  a  paying  customer. 

76.  Keep  up-to-date  telephone  numbers  of  your  company's  mainte- 
nance office  or  service  firm  posted  conveniently.  This  keeps  store  per- 
sonnel from  putting  off  a  maintenance  call. 

77.  One  way  to  keep  down  shopping  cart  losses  is  to  point  out  what 
each  one  costs.  Most  shoppers  value  the  carts  at  less  than  $5.00  each  and 
are  amazed  to  learn  that  they  cost  up  to  $50.  They  think  twice  before 
inadvertently  stealing  something  that  expensive.  You  can  offer  to  sell 
carts  to  customers;  put  a  price  tag  on  them. 

78.  Cost-saving  construction  technique:  Concrete  wall  panels  are  pre- 
cast on  the  floor  of  the  warehouse  and  tilted  up  into  place  by  a  crane. 


Appendix  A  261 

Then  reinforced  concrete  columns  are  poured  between  the  wall  panels. 

79.  Flexible  plastic  strips  along  the  hinged  edge  of  doors  prevent 
crushed  kiddies'  fingers,  which  could  mean  expensive  damage  suits  against 
you. 

80.  Establish  a  regular  schedule  for  using  a  light  meter  to  check  in- 
tensity of  light  from  the  lamps  in  your  stores,  and  for  cleaning  and  re- 
placing lamps. 

81.  Attach  pull  cords  to  light  bulbs  so  that  it  won't  be  necessary  to 
throw  the  main  switch  in  order  to  turn  off  lights  in  individual  areas  of 
the  store. 

82.  Throughout  the  day  make  frequent  temperature  checks  on  re- 
frigeration equipment.  Catch  any  defects  before  they  get  a  chance  to  pile 
up  spoiled  goods.  Know  the  defrost  cycles  of  each  piece  of  machinery, 
so  that  your  temperature  report  will  be  a  valid  one.  Make  sure  com- 
pressors are  kept  clean.  Dirt  makes  extra  wattage  necessary. 

83.  Put  up  a  complete  diagram  of  the  plumbing  and  electrical  layout 
in  each  store,  with  "X  marks  the  spot"  indications  for  all  the  sewer  clean- 
outs  and  fuse  boxes. 

84.  A  stainless  steel  moulding  on  each  side  of  the  gasket  on  walk-in 
freezer  doors  in  stores  will  keep  the  gasket  from  pulling  loose. 

85.  Make  scale  models  of  new  stores  before  the  real  thing  goes  into 
the  works.  This  way  you  can  avoid  "hindsight  blues"  over  layout. 

Store  Departments 

86.  To  handle  quarters  of  beef  you  will  save  considerable  labor  time 
if  you  cut  into  wholesale  pieces,  trim,  and  then  put  into  the  cooler.  That 
is  faster  than  putting  them  into  the  cooler  in  quarters  and  then  cutting 
them  into  wholesale  cuts  later. 

87.  When  handling  cartons  of  meat,  cut  the  tops  off,  place  in  cooler, 
and  work  from  the  cartons.  That  proves  at  least  70  per  cent  faster  than 
unpacking  the  cartons  and  hanging  or  shelving  them  in  the  cooler. 

88.  Decide  what  specific  sizes  of  cellophane  or  other  wraps  you  need, 
and  keep  only  those  sizes  on  hand.  Where  you  can  use  second-quality 
paper  instead  of  first  (cheese,  for  example),  do  so.  Cut  down  on  overlap 
in  sealing  packages. 

89.  Use  silver  polish  instead  of  steel  wool  to  take  price  markings  off 
cellophane-wrapped  items  in  meat  and  delicatessen  departments.  It  won't 
tear  the  wrapping. 

90.  Cut  down  on  power-saw  accidents  by  putting  decals  on  the  saws 
reading,  "Turn  off  main  switch  before  opening." 

91.  To  avoid  duplicate  payment  and  to  get  greater  efficiency  in  trans- 


262  Appendix  A 

shipment,  print  and  staple  labels  to  crates  of  produce  from  local  farmers. 

92.  In  filling  produce  racks,  two  hands  are  better  than  one.  The 
USDA  estimates  that  4  to  5  man-hours  weekly  can  be  saved  if  an  em- 
ployee takes  items  in  both  hands  and  places  them  simultaneously  on  the 
display.  In  a  test,  the  two-handed  technique  reduced  display  filling  time 
by  as  much  as  14  to  38  per  cent. 

93.  To  cut  unloading  time,  use  a  production-line  setup  in  your  back 
room.  One  man  calls  off  items  as  they  arrive,  while  a  second  checks  them 
with  the  order  sheet.  The  third  man  splits  the  case,  and  the  fourth  opens 
it  on  the  conveyor,  exposing  tops  of  two  layers  of  merchandise  containers. 
Two  more  men  stamp  prices,  and  the  goods  are  ready  for  the  store 
shelves. 

94.  File  special  display  signs  under  item  headings  and  use  them  again 
when  these  items  come  up  for  another  special;  this  saves  you  the  cost 
of  printing  new  signs  each  time. 

95.  Carton  openers  have  a  tendency  to  disappear  like  rabbits.  You 
can  cut  down  on  carton-opener  losses  by  selling  them  to  clerks  at  whole- 
sale prices. 

96.  Keep  weekly  records  of  produce  "throw-outs"  by  items  or  pound- 
age, or  both.  With  a  comparison  record  of  waste  to  sales,  you  can  correct 
your  ordering. 

97.  You  can  facilitate  deliveries  on  sale  items  by  splitting  them  up — 
half  in  the  week  before  the  actual  sale  and  half  during  the  sale  time. 

98.  Check  your  use  of  boards  and  trays  and  cellophane  in  meat- 
packaging  departments.  By  using  materials  just  1  inch  less  in  width,  you 
can  save. 

99.  Instruct  meat  department  heads  to  inspect  and  weigh  all  prod- 
ucts carefully  upon  receiving.  You  can  cut  down  on  short  weights  and 
poor  quality  this  way. 

100.  Place  elastic  bands  around  chicken  parts  and  fresh-cut  whole 
birds  before  packaging  to  keep  loose  parts  from  tearing  the  wrapper. 

101.  Tie  beef  rib  roasts  and  all  kinds  of  rolled  roasts  with  butcher's 
twine  before  wrapping,  to  prevent  damage  to  the  package  from  inside. 

102.  Place  the  sharp,  bony  side  of  pork  loin  roasts  against  the  card- 
board in  the  package,  and  use  rubber  bands  around  the  outside  to  safe- 
guard against  tearing. 

Back  Room 

103.  Assign  one  man  to  the  back  room  and  do  not  allow  him  to  leave 
this  room  unless  someone  replaces  him. 

104.  Do  not  permit  anybody  to  take  anything  out  of  the  store  through 


Appendix  A  263 

the  back  door  without  a  signed  transfer  or  charge  note,  to  be  checked  by 
the  person  assigned  to  the  back  room. 

105.  Do  not  permit  a  delivery  man  to  take  anything  into  the  front  of 
the  store  without  permission  of  the  back-room  man.  No  boxes,  bags,  or 
other  containers  should  leave  the  store  without  being  checked  thoroughly. 

106.  Give  strict  warning,  just  once,  to  any  delivery  man  who  is  found 
to  have  taken  something  through  the  back  door  without  first  being 
checked.  If  there  are  any  further  violations,  ask  that  another  man  take 
over  his  route. 

107.  Do  not  permit  employees  to  take  anything  out  of  the  store  unless 
they  go  through  the  check-out  stands.  Never  permit  them  to  leave  by  the 
back  entrance.  See  to  it  that  all  their  purchases  are  paid  for  at  the  time 
they  leave  the  store  and  never  before. 

108.  Make  frequent  checks  to  see  that  back  doors  are  locked. 

109.  Set  a  fixed  time  for  deliveries,  except  in  case  of  emergency.  After 
the  set  time  for  deliveries,  the  manager  should  collect  all  keys  to  the 
back  room  and  should  not  permit  anyone  to  open  these  doors  without  his 
consent. 

110.  Check  delivery  man,  particularly  when  he  collects  the  empty 
bottles. 

111.  Lock  in  night  stockers  and  cleaning  crews  for  your  stores. 

112.  Locate  your  receiving  office  for  all  merchandise  in  the  back  room. 

113.  Make  it  your  store  policy  to  limit  access  to  the  back  room  to 
authorized  personnel  only. 

114.  Keep  a  running  record  of  ' 'ins  and  outs."  Check  this  record  peri- 
odically by  physical  inventory. 

115.  If  you  have  an  outside  service  for  protection  against  pilferage, 
extend  it  to  surveillance  of  back-room  operation. 

116.  Do  not  permit  any  open  cases  or  damaged  merchandise  to  be 
stored  in  the  back  room. 

117.  Do  not  permit  employees  to  change  clothes  in  the  warehouse  or 
back  room,  but  see  to  it  that  they  go  to  the  employees'  locker  room. 

118.  When  you  notice  that  back-room  losses  are  getting  excessively 
large,  hold  a  staff  meeting  and  direct  the  attention  of  personnel  to  the 
fact  that  if  the  losses  are  traced  to  pilferage,  they  will  come  under  the 
heading  of  stealing — with  corresponding  punishment. 

119.  Put  two  separate  locks  on  the  back-room  door:  one  a  daytime 
lock,  and  one  a  nighttime  lock. 


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The  author  owes  a  debt  of  gratitude  to  the  editors,  contributors,  and 
staff  writers  of  the  magazines  Super  Market  Merchandising,  Progressive 
Grocer,  and  Chain  Store  Age,  Grocery  Executive  and  Supermarket  Edi- 
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essential  in  the  analysis. 

An  alphabetized  list  of  all  sources  of  information  used  in  this  text  is 
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265 


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INDEX 


A  &  P  {see  Great  Atlantic  &  Pacific 

Tea  Co. ) 
ABC  Stores,  Inc.,  17 
ACF-Brill  Motors  Co.  {see  ACF-Wrig- 

ley  Stores,  Inc. ) 
ACF-Wrigley  Stores,  Inc.,  29,  181 
Administration  expense,  102,  103,  110, 

111 
Advertising,  cooperative,  106 

expenditures,  65-66,  105,  106,  111 
media,  105 
Albers  Supermarkets,  Inc.,   158,  162, 

163,  168,  180 
Alexander,  Milton,  49,  69,  92,  214 
Alpha  Beta  Food  Markets,  15 
Alt,  Richard  N.,  49,  196 
American  House  Grocers,  18 
American  Stores  Co.,  integration,  179, 
180 
operating  statistics,  25,  70,  91,  150, 
159,  172,  173, 174 
Anderson,  Ira  D.,  62 
Ann  Page,  171,  184 
Applebaum,  William,  26,  57,  63,  79 
Armour  &  Co.,  172 
Ashton's  Supermarket,  180 
Automobile,  impact,  35,  37-38 
registrations,  38 

Back  room  expense,  116,  117 
Bakery  product  stores,  number,  189 

position,  197-198,  209-211 

sales,  192,  199,  200 
Balance  sheet,  123-125,  132,  146 
Bank  loans,  139-140 
Barker,  Clare  W.,  62 
Bayless,  A.  J.  Markets,  Inc.,  69,  70, 

90,  91,  118,  150 
Beckman,  Theodore  N.,  68,  158 
Beem,  Eugene,  68 


Big   Bear,    18-21,   23-25,    121,    123, 

154-155 
Big  Bear  Markets  of  Michigan,  Inc., 

181,  182 
Big  business,  28-29,  225-228 
Birdseye,  Clarence,  40 
Bohack,  H.  C,  213 
Boyd,  Harper  W.,  232 
Brand  policy,  chain,  84,  184,  239 

packer,  84 

private,  84,  184 
Breakeven  analysis,  145-147 
Brevit,  S.  L.,  16,  154 
Brown,  A.  A.,  38 
Budget  Markets,  Inc.,  180 
Budgeting  procedure,  113 
Buildings,  122-125,  128-130 
Bunnell,  Charles  N.,  17 
Butterworth,  J.  Donald,  62 
Buying,  associations,  85-87 

committee,  78-83 

decisions  to  make  or  buy,  83-84 

new  products,  77-78 

routine,  76-77 

Capital  Stores,  Inc.,  180 
Cardinal  Stores,  Inc.,  181 
Carl's  Markets,  Inc.,  180 
Carney,  Robert,  230 
Carrolls',  Ltd.  Stores,  180 
Carry  Brothers,  15 
Catherine  Market,  12 
Century  Food  Markets  Co.,  70,  91,  150 
Chain  Store  Age,  72 
Chapman  Park  Drive-in  Market,  16 
Charvat,  Frank  J.,  41 
Chattel  mortgages,  142-143 
Cheapy  supermarket,  appeal,  31,  37, 
45,  57,  222 
operating  statistics,  23-24 

271 


272 

Cheapy  supermarket  (Cont.): 
opposition,  154-159 
origin,  11,  18-25 
Clayton  Act,  181,  227 
Clovis,  L.  L.,  195 

Colonial  Stores,  Inc.,  integration,  173, 
179,  180 
operating  statistics,  70,  90,  91,  127, 
149,  150 
Combination  markets,   number,    189- 
191 
position,    195-197,    203-206,   208- 

212 
sales,  191-193,  199-202 
Cornish,  Newel,  58 
Community  relations,  251-252 
Competition,      among     supermarkets, 
224-225 
intertype,  195-197 
Concession-type  markets,  12-15 
Confectionery  stores,  number,  189 
position,  207-209 
sales,  192,  199,  200 
Consent  Decree  of  1920,  171,  172 
Consigned  merchandise,  87-88 
Construction  &  maintenance  cost,  116, 

117 
Consumer  buying  habits,  46-50 
Converse,  Paul  D.,  169-195 
Cost  of  sales,  75-88 
Cost  reduction,  116-117,  253-263 
Costs  ( see  Operating  expense ) 
Council  Oak  Stores,  180 
Country  general  store,  number,  189- 
190 
position,  193-195,  205,  210 
sales,  192 
Crawford,  R.  P.,  14 
Crystal  Palace  Market,  12-13 
Cudahy  Packing  Co.,  172 
Cullen,  Michael  {see  Kullen,  King) 
Current  assets,  125-127 

Daitch  Crystal  Dairies,  Inc.,  69,  70, 

91,  127,  150 
Dale  Supermarkets,  180 
Davidson,  William  R.,  68 
Dawson,  Roy  O.,  18,  121 
Debentures,  140-142 
Decentralization  movement,  43-46 
Decision  making,  229-232 


Index 

Delicatessen  stores,  189,  192 
Department  of  Justice,  184,  187 
Devan's  Food  Stores,  180 
Dipman,  Carl  W.,  19,  25,  28,  45 
Display  techniques,  60-61,  240 
Distribution,     costs,     108,     111-112, 

117 
cycle,  246-247 
Dixie  Home  Stores   {see  Winn-Dixie 

Stores,  Inc. ) 
Dodd,  David  L.,  141 
Dollenger,  Emil,  13 
Dolly    Madison   International    Foods, 

Ltd.,  181 
Donohue,  Al,  126,  144 
Dougall,  Herbert  E.,  149 
Drive-in  markets,  15-16 
Dun  &  Bradstreet,  Inc.,  26 
Duncan,  Delbert  J.,  194 
Durrant,  B.  A.,  195 

Eagle-United  Supermarkets,  129 

Eavey's  Supermarket,  63 

Edins  Food  Stores,  181 

Eisner  Grocery  Co.,  180 

England,  Wilbur  B.,  55,  69,  110,  111, 

137 
Equipment,  costs,  55 

lease,  137 

requirements,   122,  123,   124,  127- 
128 
Equity  capital   {see  Ownership  capi- 
tal) 
Euclid  and  46th  Street  Market,  12 
Evans  Grocery  Co.,  141,  142 
Executive  development,  241-243 
Expense,  budgeting,  112-114 

comparison  other  retailers,  101-107 

control,  112-117 

fixed,  115,  145-147,  236-237 

functional,  107-112 

individual  concern,  91 

major  items,  102-104 

reduction,  116-117 

relationships,  236-237 

standards,  114-115 

trends,  99-101 

Faneuil  Hall  Market,  12 
Federal  Trade  Commission,  chain  store 
report,  21,  23 


Index 


273 


Federal  Trade  Commission  (Cont.) 
economic   inquiry,    171,    174,    176, 

177, 179,  183,  186,  187 
enforcement,  179,  181,  227 
Federated    Department    Stores,    Inc., 

62 
Financing,  borrowing,  137-144 
equity,  144 
growth,  243-245 
leasing,  131-133,  135-137 
First  National  Stores,  Inc.,  25,  159,  173 
Fisher  Brothers  Co.,  70,  91,  127,  141, 

150 
Flint,  Lucius,  15 
Food  Center  Stores,  180 
Food  Center  Supermarkets,  180 
Food  Fair  Stores,  Inc.,  financing,  121, 
128,  142 
integration,  168,  172,  173,  179,  180, 

182 
operating  statistics,  70,  90,  91,  121, 
150 
Food  Mart,  Inc.,  70,  91,  150 
Food  Topics,  64 

Food  stores,  number,   188-191,   193- 
198 
sales,  191-198 
Foodtown  Stores,  Inc.,  181 
Food  Town  study,  92,  200 
Foster,  H.  M.,  16,  153,  155, 157 
Fruit  &  vegetable  stores,  number,  189 
position,  204-206 
sales,  192,  199-200 
Furr's,  128 

General  &  overhead  expense,  109,  110, 
111,  116,  117 

General  Foods  Corp.,  40 

Gibson,  Edwin  T.,  40 

Gilman,  John  R.,  49,  61,  73,  101 

Good  will,  130,  249-252 

Goodwin,  Arthur  E.,  12 

Graham,  Benjamin,  141 

Grand    Union   Co.,    Inc.,    integration, 
173, 178,  179,  180,  228 
operating  statistics,  70,  91,  150 

Great  Atlantic  &  Pacific  Tea  Co.,  in- 
tegration,  83,    168,    171,    172, 
173,  176,  177,  178,  179,  184, 
187,  227 
nonfoods,  88 


Great  Atlantic  &  Pacific  Tea  Co. 

( Cont. ) : 

operating  statistics,  23,  27,  123,  159, 
160,  173 

supermarket  movement,  23,  25-26, 
90,  101,  158,  159-166,  167 
Grimes,  Don  R.,  86 
Grocery  stores,  number,  189,  190 

position,  205,  210,  212-213 

sales,  192,  193,  199,  200 
Gross  margin,  comparison,  93-95 

improvement,  96-98 

individual  company,  91 

product  lines,  92,  95-96 

specific  products,  201-202 

trends,  8&-93,  223 
Growth,  cycle,  223-225 

deterrents,  246-249 

financing,  243-245 
Guthmann,  Harry  G.,  149 

Harb,  Ray,  64 

Haring,  Albert,  67 

Hartford,  John  A.,  25,  160,  164 

Harvard    Business    School    Study    of 

Food  Chains,  54,  69,  95,  108, 

116,  119 
Hayward,  Walter,  14 
Henke  &  Pillot,  Inc.,  17,  179 
Hill,  H.  G.  Stores,  Inc.,  181 
Huegy,  Harvey  W.,  169,  195 
Humpty  Dumpty  Stores,  181 


Illinois  Valley  Stores,  180 
Indebtedness,  137-144,  149,  151 
Independent      Grocers     Alliance     of 

America,  4,  86,  87 
Intangible  assets,  130 
Integration,  food  chains,  172-185 

horizontal,  169-172,  227 

vertical,  169-172 

with  other  retailers,  73,  227 
Inventory,    nonfoods     (see    Nonfood 
products ) 

number  of  items,  68-69 

selection,  69 

turnover,  69-71,  134,  135 

vs.  real  estate,  133-135 
Ireland,  William  S.,  60 


274 


Index 


Jane  Parker,  171,  184 

Jewel  Tea  Co.,  Inc.,  70,  76,  91,  150, 

173, 179,  180 
Jitney  Jungle  Stores,  181 

Ketner-Milner  Stores,  Inc.,  181 

Kintner,  Earl  W.,  183 

Kleppner,  Otto,  106 

Kohler,  Eric,  141 

Kornblau,  Curt,  130,  213,  215 

Krambo  Food  Stores,  Inc.,  179 

Kresge,  S.  S.  Co.,  62 

Kroger  Company 

integration,  14,  173,  177,  178,  179, 

184,  227 
operating  statistics,  70,  91,  150 
supermarket  movement,  25,  26,  158, 
159,163 

Kullen,  King,  18-19,  21,  24,  25,  160 

Kuznets,  Simon,  33 

Labor  expense  (see  Payroll) 

Lakewood  Center,  45 

Land,  122,  123,  124,  125,  123-130 

Larrabee,  C.  B.,  17,  20,  154 

Lease 

equipment,  137 

fixed  assets,  131-137 

new  locations,  135-137 

vs.  owning  buildings,  132-133 
Leaseback  method,  136 
Leasehold  improvements,  130-131 
Lebhar,  Godfrey,  197 
Lebow,  Victor,  57,  58 
Lexington  Market,  12 
Life,  50 

Limited-line  food  store,  195-198 
Lincoln  Village,  44 
Loblaw  Groceterias  Co.,  Ltd.,  180 
Loblaw,  Inc.,  180, 181 
Location  of  supermarkets,  63—65 
Logan,  John  A.,  122,  129 
Logan's  Supermarkets,  180 
Long-term  indebtedness,  140-144 
Los  Angeles  supermarkets,  11,  15-17, 

153-154 
Louisville  Grocery  Survey,  22 
Lucky  Stores,  Inc.,  70,  91,  150,  179, 
181 


Maker's  Food  Chain,  180 
Mann,  Everett,  145 

Manufacturing   and   processing   tech- 
niques, 35,  40-41 
Marcus,  Meyer,  121,  128 
Margins  (see  Gross  margin) 
Market  Basket,  Inc.,  integration,  182 

operating  statistics,  70,  90,  91,  149, 
150 
Market   Basket    Corp.    (New   York), 

180 
Market  of  the  Sixties,  50-52 
Market  stores,  11,  15-17 
Marketing  research,  232-234 
Mattei,  G.  L.,  97 
Maynard,  Harold  H.,  68 
McCall's  Food  and  Grocery  Products 

Diary  Study,  48,  61,  63,  64 
McCloskey,  Joseph,  232 
McNair,  Malcolm  P.,  31,  69,  158,  195, 

246 
McNamara,  Harley  V.,  122 
Meat  and  seafood  markets,  number, 
189,  190 

position,  202-204 

sales,  192,  199,  200 
Merchandising,  definition,  68 

display,  60-61 

new  items,  77-78 

nonfoods,  71-73 

policies,  238-240 
Montag's  Supermarket  Co.,  180 
Montgomery,  Charlotte,  50 
Moulton,  Richard,  79 
Mueller,  Robert,  196 
Myers,  Herman  L.,  34 

National  Association  of  Food  Chains, 

122,  129 
National  Grocery  Co.,  73 
National  Recovery  Act,  166 
National  Retail  Dry  Goods  Association, 

108 
National  Tea  Co.,  building,  129 
costs,  122 
integration,  29,  178,  179,  180,  181, 

227 
sales,  173 
New  products,  77-83 
Nolen,  H.  C,  158 


Index 

Nonfood  products,  impact,  216-219 

policies,  238-239 

purchases,  71-74 

sales,  213-219- 

saturation,  248 
Northwest  Piggly  Wiggly  Co.,  180 
Notes  payable,  140-141 
Nugent,  William  C,  78,  79,  82 
Nystrom,  Paul  H.,  12,  166 

Occupancy,  102,  103,  105 
One-stop  shopping,  46-49 
Operating  expenses  ( see  Expenses ) 
Operating  statements,  55,  56,  100,  124 
Operations  research,  232,  233,  234 
Organization    of    supermarkets,    228- 

229 
Otis,  Robert  M.,  18,  121 
Ownership  capital,  144,  146 

Parsons,  Don,  61 

Payroll,  55,  56,  102-104,  111,  116 
Personnel,  103,  109,  241-243 
Phillips,  Charles  F.,  21,  22,  25,  30, 

89,194 
Piggly  Wiggly  Stores,  11,  13-15,  29, 

158,  180 
Pike  Place  Market,  12 
Population    impact    on    supermarket, 

41-43 
Price,  appeal,  57-58 

policies,  58-60 
Printers'  Ink,  153 
Profit,  comparison,  119-120 

Great  Atlantic  &  Pacific  Tea   Co., 

166 
individual  company,  91 
on  net  worth,  133,  145-148 
on  total  assets,  133 
related   to    volume,    fixed   expense, 

and  promotion,  230-237 
trends,  117-119 
Progressive  Grocer,  67,  96,  107,  108, 

168,  208 
Promotion,  65-68,  105,  236-237 
Purity  Stores,  Ltd.,  70,  91,  150 

Rack  jobber,  72,  87,  88,  214,  215,  219 
Ralph's  Grocery  Co.,  15 
Rapp,  Fred,  Inc.,  181 


275 

Ratio  analysis,  148-150,  123-125 

Reading  Terminal  Market,  12 

Real  estate  expenses,  55,  56,  103,  105, 

109,  111 
Real  estate  mortgages,  143-144 
Red  and  White  Corp.,  4,  64,  86 
Refrigeration,  35,  38-40 
Rent  expense  (see  Occupancy) 
Rental-purchase  plan,  137 
Research,  232-236 
Richland,  Arthur  H.,  138 
Robinson-Patman  Act,  106,  166 
Roosevelt  Field  center,  45 
Rowaldt,  M.  J.,  153 

Safeway  Stores,  Inc.,  integration,  14, 
,*       73,   173,   176,   177,   178,   179, 
181,  184,  187 

operating  statistics,  70,  91,  150 

supermarket  movement,  158,  159 
Salaries,  55,  56,  103-104,  109 
Sales,  food  stores,  192-194 

percentage  store  area,  123 

policies,  57-74 

supermarket,  3 
Saunders,  Clarence,  13,  14 
Schmalz,  Carl  N.,  23 
Schwegmann  Brothers,   Inc.,   62,   73, 

90 
Scott,  Forrest,  34 
Scrambled  merchandising,  31,  46,  49, 

196-197,  251 
Self-service,  61-62,  104,  116,  242 
Selling  operations,  53-74 
Serv-U-Meat  Markets,  181 
Shaffer,  Henry,  138 
Shaffer  Stores  Co.,  70,  90,  91,   118, 

138,  150 
Sherman  Anti-trust  Act,  171 
Shirley  Food  Stores,  180 
Shopping  Bag  Food   Stores,   70,   91, 

101,  150 
Shopping,  centers,  43-45 

facilities,  62-63 

habits,  46-50 
Short-term  indebtedness,  139-140 
Slater,  Charles,  197,  209 
Small  Business  Administration,  140 
Smith,  C.  F.  Stores  Co.,  180 
Smith,  H.  A.  Markets,  Inc.,  180 


276 

Smith,  V.  B.,  43 
Southwest  markets,  17-18 
Smith's,  George  T.  Basket,  Inc.,  180 
Standards,  establishment,  114 

measurement,  114-115 
Stop  and  Shop,  180 
Stop  and  Shop  enterprise,  180 
Store,  expense,  109,  110,  111,  117 

image,  249 

operations,  107-112,  240-243 
Straight-lease  plan,  137 
Subsidiary  corporations,  136 
Sunrise  Supermarkets   Corp.,   70,  91, 

150 
Supermarket,  decentralization,  45-46 

definition,  6-7 

development,  11-29 

impact,  Chapters  10  and  11 

industry  statistics,  3-6 

location,  5-6,  62-65 

operations  {see  functional  areas 
such  as  advertising,  buying,  and 
selling ) 
Super  Market  Institute,  26-27,  80,  100, 
104,  105,  108,  111,  114,  115, 
119,  130,  214,  249 
Super  Market  Merchandising,  27,  66, 

90,  99,  108,  118 
Super  Valu  study,  92,  200 
Supplies,  55,  56,  100,  111 
Swift  and  Co.,  172 

Tanner  Stores,  180 
Tarlin,  Lloyd  B.,  113 
Tarrant,  Chris,  73 
Teutsch,  Carl,  129 
Thriftmart,  Inc.,  70,  91,  101,  150 
Toilet  Goods  Association,  217 
Tousley,  R.  D.,  9,  197 
Trade  on  equity,  149,  182 


Index 

Trading  stamps,  66-68,  106-107,  109    '  \ 
Transportation  expense,  109,  110,  111, 

117 
Trefethen,  Florence,  232 
Turnover  ( see  Inventory ) 
Two  Guys  from  Harrison,  Inc.,  73 

Underhill,  H.  W.,  129 
Utilities,  55,  56,  100,  111 

Value  Markets,  180 

Van  de  Kamp,  Walter,  15, 16,  154 

Voluntary  Chain  growth,  185-186 

integration,  185-186 

retail,  86-87 

wholesale,  86 

Walgreen  Drug  Co.,  62 

Warehouse  expense,  109,  110,  111, 
117 

Weingarten,  J.,  Inc.,  17,  70,  91,  150 

Weiss,  E.  B.,  50,  77,  79 

Westfall,  Ralph,  232 

Weston,  George,  Ltd.,  180,  181,  184 

White,  Percival,  14 

Wilt's  Supermarket,  54,  56 

Winn-Dixie  Stores,  Inc.,  173,  178,  179, 
181,  182 

Winn-Lovett  Company  (see  Winn- 
Dixie  Stores,  Inc. ) 

Woolworth,  F.  W.  Co.,  62 

Wrigley  Stores  Co.  ( see  ACF-Wrigley 
Stores,  Inc. ) 

Wyatt  and  Evans  Food  Stores,  179 

Yoder,  Wallace  O,  67 

Zimmerman,  M.  M.,  18,  19,  21,  24,  25, 
27,  28,  57,  121,  122,  154,  156, 
157 


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